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EX-32.1 - EXHIBIT 32.1 - Sino Agro Food, Inc.v461495_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - Sino Agro Food, Inc.v461495_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Sino Agro Food, Inc.v461495_ex31-1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

  

FORM 10-Q/A

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended September 30, 2016

OR

¨ TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 000-54191

 

SINO AGRO FOOD, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   33-1219070

(State of Other Jurisdiction of Incorporation or

Organization)

  (I.R.S. Employer Identification Number)
     

Room 3801, Block A, China Shine Plaza

No. 9 Lin He Xi Road

Tianhe District, Guangzhou City, P.R.C.

  510610
(Address of Principal Executive Offices)   (Zip Code)

 

(860) 20 22057860

(Registrant’s Telephone Number, Including Area Code)

 

Copies to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY10006

Attn: Marc Ross, Esq.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” "non-accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨ Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of November 14, 2016 there were 21,456,859 shares of our common stock issued and outstanding.

 

 

 

 

EXPLANATORY NOTE

 

The registrant is filing this Amendment No. 1 to its Form 10-Q for the quarter ended September 30, 2016 as filed on November 14, 2016 (the “Original Filing”) to correct certain inadvertent errors appearing under "Non-current Assets held for Sale", and furthermore, on the balance sheet, and statement of cash flows. In addition, the registrant has determined to restate its balance sheets and statements of income and other comprehensive income for the fiscal years ending December 31, 2015 as filed on March 30, 2016 (the "Original Filing"), and December 31, 2014 as filed on March 31, 2015 (the "Original Filing"). The audit report reflects this restatement.

 

Except as described above, no other information in the Original Filing has been updated and this Amendment No. 1 continues to speak as of the date of the Original Filing. Other events occurring after the filing of the Original Filing or other disclosure necessary to reflect subsequent events will be addressed in other reports filed with or furnished to the SEC subsequent to the date of the filing of the Original Filing.

  

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements  
Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operations 1
Item 3.  Quantitative and Qualitative Disclosures About Market Risk  52
Item 4. Controls and Procedures 52
     
PART II – OTHER INFORMATION 53
Item 1. Legal Proceedings 53
Item 1A. Risk Factors 53
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 53
Item 3. Defaults Upon Senior Securities 53
Item 4. Mine Safety Disclosures 53
Item 5. Other Information 53
Item 6. Exhibits 53
SIGNATURES 54

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL STATEMENTS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(Unaudited)

 

 

 

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(Unaudited)

  

  PAGE
   
INDEPENDENT ACCOUNTANT’S REPORT F-1
   
CONSOLIDATED BALANCE SHEETS (Unaudited) F-2
   
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (Unaudited) F-3
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) F-4
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 to F-43

 

 

 

 

 

14/F., San Toi Building, 137-139 Connaught Road Central, Hong Kong.

Tel : (852) 2581 7500

Fax : (852) 2581 7588

 

To the Board of Directors and Stockholders of

Sino Agro Food, Inc.

(Incorporated in the State of Nevada, United States of America)

 

INDEPENDENT ACCOUNTANT’S REPORT 

 

We have reviewed the consolidated balance sheets of Sino Agro Food, Inc. and subsidiaries as of September 30, 2016 and December 31, 2015, the related consolidated statements of income and other comprehensive income for the three-month ended September 30, 2016 and 2015, and the nine-month periods ended September 30, 2016 and 2015, and cash flows for the nine-month periods ended September 30, 2016 and 2015. This interim financial information is the responsibility of the company's management.

 

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

 

This quarterly report on Form 10-Q is being filed as Amendment No. 1 to our Quarterly Report on Form 10-Q which was originally filed on November 14, 2016 and amended on March 16, 2017. We are amending and restating our financial statements to:

 

·restate Consolidated Balance Sheet to reflect Non-current assets held for sale

 

·restate Consolidated Statements of Income and Other Comprehensive Income to separate Net income from continuing and Net income From Discontinued Operations.

 

·restate Segment Information - note (3) to separate Net income from Continuing and Net income from Discontinued operations.

 

·restate Earnings Per Share - note (29) to reflect earnings per share from continued and discontinued operations and earnings per share from continued operations.

 

·restate Plant and Equipment as certain plant and equipment - note (11) have been reclassified as Non- Assets Held for Sale

 

·add Non-Current Assets Held for Sale- note (12) for more disclosure

 

·add Net Income From Discontinued operations note (5) for more disclosure

 

·add Subsequent Event - note (30) to disclose deemed disposal of subsidiaries, TRW and JFD

 

·revise Consolidated Statements of Cash

 

 

/s/ECOVIS  David Yeung Hong Kong
 
 
Hong Kong
November 14, 2016

 

Amended on March 16, 2017  

 

 F-1 

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

      September 30,
2016
   December 31,
2015
 
      (Unaudited)   (Audited) 
   Note  (Restated)   (Restated) 
ASSETS             
Current assets             
Cash and cash equivalents  6  $9,052,566   $7,229,197 
Inventories  7   65,055,856    62,848,707 
Costs and estimated earnings in excess of billings on uncompleted contracts  21   1,557,713    1,306,885 
Deposits and prepayments  8   95,334,913    83,811,929 
Accounts receivable, net of allowance for doubtful accounts  9   135,759,072    135,674,418 
Other receivables  10   74,123,074    59,780,587 
Total current assets      380,883,194    350,651,723 
Plant and equipment             
Plant and equipment, net of accumulated depreciation  11   101,984,289    95,238,410 
Non-current assets held for sale  12   8,381,108    9,020,669 
Construction in progress  13   115,771,608    72,788,769 
Land use rights, net of accumulated amortization  14   55,868,376    58,485,675 
Total plant and equipment      282,005,381    235,533,523 
Other assets             
Goodwill  15   724,940    724,940 
Proprietary technologies, net of accumulated amortization  16   10,293,472    10,784,358 
Investment in unconsolidated equity investee  17   149,745    - 
Long term investment  18   748,727    769,941 
Temporary deposits paid to entities for investments in Sino joint venture companies  19   41,109,708    41,109,708 
Total other assets      53,026,592    53,388,947 
              
Total assets     $715,915,167   $639,574,193 
              
LIABILITIES  AND STOCKHOLDERS' EQUITY             
              
Current liabilities             
Accounts payable and accrued expenses     $15,095,032   $9,345,559 
Billings in excess of costs and estimated earnings on uncompleted contracts  21   1,647,280    8,700,706 
Due to a director      566,283    211,247 
Other payables  22   6,159,238    4,792,579 
Borrowings - Short term bank loan  23   7,357,739    4,466,040 
Negotiable promissory notes  24   885,997    865,968 
       31,711,569    28,382,099 
              
Non-current liabilities             
Other payables  22   19,422,652    4,797,332 
Borrowings - Long term debts  23   728,514    1,554,902 
Convertible note payables  24   23,496,718    34,904,739 
       43,647,884    41,256,973 
              
Commitments and contingencies  29   -    - 
              
Stockholders' equity             
Preferred stock: $0.001 par value (10,000,000 shares authorized, 100 and 100 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively)             
Series A preferred stock:  $0.001 par value (100 shares designated, 100 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively)  26  $-   $- 
Series B convertible preferred stock:  $0.001 par value (10,000,000 shares designated, 0 shares issued  and outstanding as of September 30, 2016 and December 31, 2015, respectively)  26   -    - 
Series F Non-convertible preferred stock:  $0.001 par value (1,000,000 shares designated, 0 shares issued  and outstanding as of September 30, 2016 and December 31, 2015, respectively)  26   -    - 
Common stock:  $0.001 par value (22,727,273 shares authorized, 21,456,859 and 20,133,757 shares issued as of September 30, 2016 and December 31, 2015, respectively)  26   21,457    20,134 
Additional paid - in capital      150,788,947    142,882,173 
Retained earnings      388,312,091    339,616,638 
Accumulated other comprehensive income      (2,584,868)   1,427,638 
Treasury stock  26   (1,250,000)   (1,250,000)
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity      535,287,627    482,696,583 
Non - controlling interest      105,268,087    87,238,538 
Total stockholders' equity      640,555,714    569,935,121 
Total liabilities and stockholders' equity     $715,915,167   $639,574,193 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 F-2 

 

  

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

 

   Note  Three months ended
September 30, 2016
   Three months ended
September 30, 2015
   Nine months ended
September 30, 2016
   Nine months ended
September 30, 2015
 
      (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
      (Restated)   (Restated)   (Restated)   (Restated) 
Continuing operations                       
Revenue                       
- Sale of goods     $88,280,225   $67,432,650   $207,057,021   $188,663,207 
- Consulting and service income from development contracts      23,062,838    28,406,973    54,727,215    66,120,235 
- Commission and management fee      314,517    226,585    1,049,199    1,250,656 
   3   111,657,580    96,066,208    262,833,435    256,034,098 
Cost of goods sold  3   (69,021,740)   (52,119,984)   (158,360,354)   (142,858,398)
Cost of services  3   (12,450,460)   (17,151,938)   (35,377,800)   (40,468,368)
                        
Gross profit      30,185,380    26,794,286    69,095,281    72,707,332 
General and administrative expenses      (4,741,193)   (3,687,098)   (12,368,561)   (13,114,628)
Net income from operations      25,444,187    23,107,188    56,726,720    59,592,704 
Other income (expenses)                       
                        
Government grant      1,305,147    746,929    1,617,615    888,770 
                        
Other income      -    -    210,929    152,467 
                        
Interest expense      (1,013,094)   (1,328,617)   (3,155,277)   (3,438,220)
Net income (expenses)      292,053    (581,688)   (1,326,733)   (2,396,983)
                        
Net income (expenses) before income taxes      25,736,240    22,525,500    55,399,987    57,195,721 
Provision for income taxes  4   -    -    -    - 
                        
Net income      25,736,240    22,525,500    55,399,987    57,195,721 
Less: Net (income) loss attributable to non - controlling interest      (7,211,538)   (5,726,422)   (18,171,791)   (17,500,331)
Net income from continuing operations attributable to the Sino Agro Food, Inc. and subsidiaries      18,524,702    16,799,078    37,228,196    39,695,390 
Discontinued operations                       
Net income from discontinued operations  5   2,900,128    5,191,084    12,288,230    16,262,342 
Less: Net (income) loss attributable to non - controlling interest      (132,353)   (468,062)   (820,973)   (1,370,589)
Net income of discontinued operations attributable to the Sino Agro Food, Inc. and subsidiaries      2,767,775    4,723,022    11,467,257    14,891,753 
Net income attributable to the Sino Agro Food, Inc. and subsidiaries      21,292,477    21,522,100    48,695,453    54,587,143 
Other comprehensive income (loss) Foreign currency translation gain (loss)      (1,793,042)   (4,635,528)   (4,975,721)   (3,847,123)
Comprehensive income      19,499,435    16,886,572    43,719,732    50,740,020 
Less: other comprehensive (income) loss attributable to the non - controlling interest      226,668    (643,103)   963,215    (782,411)
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries     $19,726,103   $16,243,469   $44,682,947   $49,957,609 
                        
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:                       

-from continuing and discontinued operations

                       
Basic  31  $1.04   $1.14   $2.45   $3.02 
Diluted  31  $0.95   $1.14   $2.24   $3.02 
                        
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:                       
-from continued operations                       
Basic  31  $0.91   $0.89   $1.87   $2.19 
Diluted  31  $0.83   $0.89   $1.72   $2.19 
                        
Weighted average number of shares outstanding:                       
                        
Basic      20,376,225    18,822,876    19,900,082    18,089,629 
Diluted      22,754,892    18,822,876    22,434,847    18,089,629 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 F-3 

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Nine months ended
September 30, 2016
   Nine months ended
September 30, 2015
 
   (Unaudited)   (Unaudited) 
Cash flows from operating activities          
Net income for the period  $      
-Continuing operations   55,399,987    57,195,721 
-Discontinued operations   12,288,230    16,262,342 
Adjustments to reconcile net income for the year to net cash from operations:          
Depreciation   3,406,801    2,145,020 
Amortization   1,483,625    1,513,426 
Common stock issued for services and employee compensation   2,354,153    1,940,294 
Other amortized cost   2,509,296    2,830,201 
Changes in operating assets and liabilities:          
Increase in inventories   (2,207,149)   (5,165,922)
Increase in cost and estimated earnings in excess of billings on uncompleted contacts   (250,828)   (1,306,885)
Increase in deposits and prepaid expenses   (9,202,525)   (1,824,342)
Increase in due to a director   299,243    1,645,472 
Increase (decrease) in accounts payable and accrued expenses   5,749,473    (1,677,511)
Increase  in other payables   14,573,279    4,476,860 
Increase in accounts receivable   (84,654)   (24,754,751)
Decrease in billings in excess of costs and estimated earnings on uncompleted contracts   (7,053,426)   (4,186,100)
Increase in other receivables   (17,205,037)   (12,428,932)
Net cash provided by operating activities   62,060,468    36,664,893 
Cash flows from investing activities          
Purchases of property and equipment and non-current assets held for sale   (9,773,377)   (3,949,521)
Investment in unconsolidated equity investee   (150,806)   - 
Payment for construction in progress   (47,834,113)   (40,594,640)
Net cash used in investing activities   (57,758,296)   (44,544,161)
Cash flows from financing activities          
Short term bank loan repaid   (3,849,707)   (4,085,635)
Short term bank loan raised   6,738,544    - 
Long term debts repaid   (823,526)   - 
Series F Non-convertible preferred stock redemption   -    (3,146,063)
Director reimbursement for cash originally deposited in due to a director          
-     Convertible notes repaid   (7,676,760)   - 
-     Net proceeds from convertible notes payable   -    13,367,550 
-     Net proceeds from negotiable promissory notes   -    3,540,000 
Net cash (used in) provided by financing activities   (5,611,449)   9,675,852 
Effects on exchange rate changes on cash   3,132,646    4,723,149 
Increase in cash and cash equivalents   1,823,369    6,519,733 
Cash and cash equivalents, beginning of period   7,229,197    3,031,447 
Cash and cash equivalents, end of period  $9,052,566   $9,551,180 
           
Supplementary disclosures of cash flow information:          
Cash paid for interest  $224,059   $504,846 
Cash paid for income taxes  $-   $- 
Non - cash transactions          
Series B convertible preferred stock converted into common stock  $-   $7,000 
Common stock issued for services and employee compensation  $7,963,889   $726,362 
Common stock purchased back for cancellation  $(5,820,000)  $- 
Common stock issued to decimal stockholders for rounding up shares holding  $-   $2,772,281 
Common stock issued to secure debts loan  $5,764,207   $9,496,665 
Transfer to plant and equipment from construction in progress  $1,443,313   $12,992,628 
Transfer to plant and equipment from deposits and prepayments  $1,350,000   $9,323 
Reverse split adjustment  $-   $5,639 
Proceeds from convertible bond payables applied to investing and financing activities  $-   $17,823,400 

  

The accompanying notes are an integral part of these consolidated financial statements.

 

 F-4 

 

  

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.CORPORATE INFORMATION

 

Sino Agro Food, Inc. (the “ Company ” or “ SIAF ”) (formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development, Inc.) was incorporated on October 1, 1974 in the State of Nevada, United States of America.

 

The Company was engaged in the mining and exploration business but ceased its mining and exploring business on October 14, 2005. On August 24, 2007, the Company entered into a Merger and Acquisition Agreement with Capital Award Inc., a Belize corporation (“ CA ”) and its subsidiaries Capital Stage Inc. (“ CS ”) and Capital Hero Inc. (“ CH ”). Effective the same date, CA completed a reverse merger transaction with SIAF. SIAF acquired all the outstanding common stock of CA from Capital Adventure, a shareholder of CA, for 3,232,323 shares of the Company’s common stock.

 

On August 24, 2007 the Company changed its name from Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc. On December 8, 2007, the Company changed its name to Sino Agro Food, Inc.

 

On September 5, 2007, the Company acquired three existing businesses in the People’s Republic of China (the “P.R.C.” ):

 

(a)Hang Yu Tai Investment Limited (“ HYT ”), a company incorporated in Macau, the owner of 78% equity interest in ZhongXingNongMu Ltd (“ ZX ”), a company incorporated in the P.R.C.;

 

  (b) Tri-way Industries Limited (“ TRW ”), a company incorporated in Hong Kong; and

 

  (c) Macau Eiji Company Limited (“ MEIJI”), a company incorporated in Macau, the owner of 75% equity interest in Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd. (“ HST ”), a P.R.C. corporate Sino-Foreign joint venture. HST was dissolved in 2010.

 

On November 27, 2007, MEIJI and HST established a corporate Sino - Foreign joint venture, Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“ JHST ”), a company incorporated in the P.R.C. with MEIJI owning a 75% interest and HST owning a 25% interest.

 

On November 26, 2008, SIAF established Pretty Mountain Holdings Limited (“ PMH”), a company incorporated in Hong Kong with an 80% equity interest. On May 25, 2009, PMH formed a corporate Sino-Foreign joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd. (“ SJAP ”), incorporated in the P.R.C., of which PMH owns a 45% equity interest. At the time, the remaining 55% equity interest in SJAP was owned by the following entities:

 

  Qinghai Province Sanjiang Group Company Limited (English translation) (“ Qinghai Sanjiang”), a company incorporated in the P.R.C with major business activities in the agriculture industry; and

 

  Guangzhou City Garwor Company Limited (English translation) (“ Garwor”), a company incorporated in the P.R.C., specializing in sales and marketing.

 

SJAP is engaged in the business of manufacturing bio-organic fertilizer, livestock feed and development of other agriculture projects in the County of Huangyuan, in the vicinity of the Xining City, Qinghai Province, P.R.C.

 

In September 2009, the Company carried out an internal reorganization of its corporate structure and business, and formed a 100% owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“ APWAM ”), which was formed in Macau. APWAM then acquired PMH’s 45% equity interest in SJAP. By virtue of the acquisition, F-8 APWAM assumed all obligations and liabilities of PMH under the Sino Foreign Joint Venture Agreement. On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the PRC approved the sale and transfer. As a result, APWAM owned 45% of SJAP and Garwor owned the remaining 55%. This remains the case as of the date of this report (the “ Report”).

 

On September 9, 2010, an application was submitted by the Company to the Companies Registry of Hong Kong for deregistration of PMH under Section 291AA of the Hong Kong Companies Ordinance. On January 28, 2011, PMH was dissolved.

 

 F-5 

 

  

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.CORPORATE INFORMATION (CONTINUED)

 

On February 15, 2011 and March 29, 2011, the Company entered into an agreement and a memorandum of understanding (an “ MOU” ), respectively, to sell 100% equity interest in HYT group (including HYT and ZX) to Mr. Xin Ming Sun, a director of ZhongXingNong Nu Co., Ltd for $45,000,000, with effective date of January 1, 2011.

 

On February 28, 2011, the Company applied to form Enping City Bi Tao A Power Prawn Culture Development Co Limited (“ EBAPCD ”) , and the Company would indirectly own a 25% equity interest in future Sino Joint Venture Company (pending approval).

 

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“ EBAPFD ”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“ JFD ”) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested for total cash consideration of $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. As of January 1, 2012, the Company had consolidated the assets and operations of JFD. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the total cash consideration of $1,702,580. These acquisitions were at our option according the terms of the original development agreement. The Company presently owns a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors.

 

On April 15, 2011, MEIJI applied to form Enping City A Power Cattle Farm Co., Limited (“ ECF ”), all of which the Company would indirectly own a 25% equity interest on November 17, 2011. On January 1, 2012, the Company had invested $1,076,489 in ECF and the amount was settled in contra against accounts receivable due from ECF. On September 17, 2012 MEIJI formed Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“ JHMC ”) and acquired additional 50% equity interest for the total cash consideration of $2,944,176 on September 30, 2012 while withdrawing its 25% equity interest in ECF. This acquisition was at our option according to the terms of the original development agreement. The Company presently owns 75% equity interest in JHMC, representing majority of voting right and controls its board of directors. As of September 30, 2012, the Company had consolidated the assets and operations of JHMC. Up to September 30, 2016, total investment in HJMC was $4,420,665.

 

On July 18, 2011, the Company formed Hunan Shenghua A Power Agriculture Co., Limited (“ HSA ”), in which the Company owns a 26% equity interest, and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%. As of September 30, 2016, MEIJI and SJAP total investment in HSA were $857,808 and 629,344, respectively.

 

On November 12, 2013, the Company acquired a shell company, Goldcup9203 AB, incorporated in Sweden, in which the Company owns a 100% equity interest. Goldcup 9203 AB changed its name to Sino Agro Food Sweden AB (publ) (“ SAFS ”). As of September 30, 2016, the Company invested $77,664 in SAFS.

 

SJAP formed Qinghai Zhong He Meat Products Co., Limited (“ QZH ”), with SJAP would owning 100% equity interest. On October 25, 2015, both QZH and new stockholder, Qinghai Quanwang Investment Management Co., Ltd (“ QQI ”) contributed additional capital of $4,157,682 and $769,941, respectively. As of result, SJAP decreased its equity interest from 100% to 85% and QQI owned a 14% equity interest. As of September 30, 2016, the SJAP’s total investment in QZH was $4,645,487. In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoy interest 6% annually on its capital contribution and did not enjoy profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% on profit or loss after deduction 6% interest to QQI and enjoyed 100% voting rights of QZH’s board and stockholders meetings.

 

On May 6, 2016, SJAP invested in 30% equity interest in Guangzhou Horan Taita Information Technology Co., Limited (“HTIT”), a company incorporated in P.R.C. for $150,806.

 

The Company’s principal executive office is located at Room 3801, Block A, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District, Guangzhou City, Guangdong Province, P.R.C., 510610.

 

The nature of the operations and principal activities of the Company and its subsidiaries are described in Note 2.2.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

2.1FISCAL YEAR

 

The Company has adopted December 31 as its fiscal year end.

 

 F-6 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.2REPORTING ENTITIES

 

Name of subsidiaries   Place of incorporation   Percentage of interest   Principal activities
             
Capital Award Inc. (“CA”)   Belize   100% (12.31.2015: 100%) directly   Fishery development and holder of A-Power Technology master license.
             
Capital Stage Inc. (“CS”)   Belize   100% (12.31.2015: 100%) indirectly   Dormant
             
Capital Hero Inc. (“CH”)   Belize   100% (12.31.2015: 100%) indirectly   Dormant
             
Sino Agro Food Sweden AB (“SAFS”)   Sweden   100% (12.31.2015: 100%) directly   Dormant
             
Tri-way Industries Limited (“TRW”)   Hong Kong, P.R.C.   100% (12.31.2015: 100%) directly   Investment holding, holder of enzyme technology master license for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.
             
Macau Eiji Company Limited (“MEIJI”)   Macau, P.R.C.   100% (12.31.2015: 100%) directly   Investment holding, cattle farm development, beef cattle and beef trading
             
A Power Agro Agriculture Development (Macau) Limited (“APWAM”)   Macau, P.R.C.   100% (12.31.2015: 100%) directly   Investment holding
             
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd (“JHST”)   P.R.C.   75% (12.31.2015: 75%) indirectly   HylocereusUndatus Plantation (“HU Plantation”).
             
Jiang Men City A Power Fishery Development Co., Limited (“JFD”)   P.R.C.   75% (12.31.2015: 75%) indirectly   Fish cultivation
             
Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”)   P.R.C.   75% (12.31.2015: 75%) indirectly   Beef cattle cultivation
             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   P.R.C.   76% (12.31.2015: 76%) indirectly   Manufacturing of organic fertilizer, livestock feed, and beef cattle and sheep cultivation, and plantation of crops and pastures
 
Name of variable interest entity   Place of incorporation   Percentage of interest   Principal activities
             
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”)   P.R.C.   45% (12.31.2015: 45%) indirectly   Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures
             
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)   P.R.C.   *86% (12.31.2015:86%) indirectly   Cattle slaughter

 

Name of unconsolidated equity investee   Place of incorporation   Percentage of interest   Principal activities
             
Guangzhou Horan Taita Information Technology Co., Limited   P.R.C.   30% (12.31.2015: Nil%) indirectly   Software development

 

* This represents stockholding percentage of total equity.

 

In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoyed interest 6% annually on its capital contribution and did not enjoy any profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% (2015: 100%) on profit or loss after deduction 6% interest to QQI and enjoyed 100% (2015: 100%) voting rights of QZH’s board and stockholders meetings.

 

 F-7 

 

  

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.3BASIS OF PRESENTATION

 

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“ US GAAP ”).

 

Reverse stock split and new conversion rate of Series B preferred stock to share of common stock on December 16, 2014, the Company implemented a 9.9-for-1 reverse stock split. On December 17, 2014, the Company implemented new conversion rate of 9.9 for 1 share of common stock. All share information contained within this report, including consolidated balance sheets, consolidated statements of income and other comprehensive income, and footnotes have been retroactively adjusted for the effects of reverse stock split and new conversion rate of Series B preferred stock to share of common stock.

 

  2.4 BASIS OF CONSOLIDATION

 

The consolidated financial statements include the financial statements of the Company, its subsidiaries CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS and its variable interest entity SJAP and QZH. All material inter-company transactions and balances have been eliminated in consolidation.

 

SIAF, CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS, SJAP and QZH are hereafter referred to as (the “Company”).

 

  2.5 BUSINESS COMBINATION

 

The Company adopted the accounting pronouncements relating to business combination (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed on arising from contingencies. These pronouncements established principles and requirement for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquisition as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. The Company’s adoption of these pronouncements will have an impact on the manner in which it accounts for any future acquisitions.

 

  2.6 NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

The Company adopted the accounting pronouncement on non-controlling interests in consolidated financial statements, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance is primarily contained in ASC Topic “Consolidation.” It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated financial statements. The adoption of this standard has not had material impact on the Company’s consolidated financial statements.

 

  2.7 USE OF ESTIMATES

 

The preparation of consolidated financial statements in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods covered thereby. Actual results could differ from these estimates. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. The following are some of the areas requiring significant judgments and estimates: determinations of the useful lives of assets, estimates of allowances for doubtful accounts, cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, estimates of the realization of deferred tax assets and inventory reserves.

 

 F-8 

 

  

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.8REVENUE RECOGNITION

 

The Company’s revenue recognition policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer.

 

Government grants are recognized when (i) the Company has substantially accomplished what must be done pursuant to the terms of the grant that are established by the local government; and (ii) the Company receives notification from the local government that the Company has satisfied all of the requirements to receive the government grants; and (iii) the amounts are received.

 

Multiple-Element Arrangements

 

To qualify as a separate unit of accounting under ASC 605-25 “ Multiple Element Arrangements ”, the delivered item must have value to the customer on a standalone basis. The significant deliverables under the Company’s multiple-element arrangements are consulting and service under development contract, commission and management service.

 

Revenues from the Company’s consulting and services under development contracts are performed under fixed-price contracts. Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting in accordance with the Financial Accounting Standards Board (“ FASB ”) Accounting Standards Codification (“ ASC ”) Topic 605, Revenue Recognition (“ASC 605”). Under the percentage-of-completion method, the Company estimates profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the contract term. The percentage of costs incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the installation contract and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences are recorded as either costs or estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts. The Company determines a customer’s credit worthiness at the time an order is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.

 

The percentage of completion method requires the ability to estimate several factors, including the ability of the customer to meet its obligations under the contract, including the payment of amounts when due. If the Company determines that collectability is not assured, the Company will defer revenue recognition and use methods of accounting for the contract such as the completed contract method until such time as the Company determines that collectability is reasonably assured or through the completion of the project.

 

For fixed-price contracts, the Company uses the ratio of costs incurred to date on the contract to management’s estimate of the contract’s total costs, to determine the percentage of completion on each contract. This method is used as management considers expended costs to be the best available measure of progression of these contracts. Contract costs include all direct material, subcontract and labor costs and those indirect costs related to contract performance, such as supplies, tool repairs and depreciation. The Company accounts for maintenance and repair services under the guidance of ASC 605 as the services provided relate to construction work. Contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract. Changes in job performance, job conditions, and estimated profitability arising from contract penalty, change orders and final contract settlements may result in revisions to the estimated profit ability during the contract. These changes, which include contracts with estimated costs in excess of estimated revenues, are recognized as contract costs in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. At the point the Company anticipates a loss on a contract, the Company estimates the ultimate loss through completion and recognizes that loss in the period in which the loss was identified.

 

The Company does not provide warranties to customers on a basis customary to the industry, however, customers can claim warranty directly from product manufacturers for defects in equipment or products. Historically, the Company has experienced no warranty claims.

 

The Company provides various management services to its customers in the P.R.C. based on a negotiated fixed-price contract. The clients usually pay the fees when the services contract is signed and services are rendered. The Company recognizes these services-based revenues from contracts when (i) management services are rendered; (ii) clients recognize the completion of services; and (iii) collectability is reasonably assured. Fees received in advance are recorded as deferred revenue under current liabilities.

 

 F-9 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.9COST OF GOODS SOLD AND COST OF SERVICES

 

Cost of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies. Cost of services consist primarily direct cost and indirect cost incurred to date for development contracts and provision for anticipated losses for development contracts.

 

  2.10  SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $2,988, $1,260, $17,272 and $9,952 for the three months and the nine months ended September 30, 2016 and 2015, respectively. 

 

  2.11 ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $382,596, $712,614, $1,163,547 and $1,421,458 for the three months ended and the nine months ended September 30, 2016 and 2015, respectively.

 

  2.12 RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $0, $549,020, $0 and $549,020 for the three months ended and the nine months ended September 30, 2016 and 2015, respectively.

 

  2.13 FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

 

The reporting currency of the Company is the U.S. dollars. The functional currency of the Company is the Chinese Renminbi (RMB).

 

For those entities whose functional currency is other than the U.S. dollars, all assets and liabilities are translated into U.S. dollars at the exchange rate on the balance sheet date; shareholders’ equity is translated at historical rates and items in the statements of income and of cash flows are translated at the average rate for the period. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported in the statements of cash flows will not necessarily agree with changes in the corresponding balances in the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statements of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income, as incurred.

 

Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $(2,584,868) as of September 30, 2016 and $1,427,638 as of December 31, 2015. The balance sheet amounts with the exception of equity as of September 30, 2016 and December 31, 2015 were translated using an exchange rate of RMB 6.68 to $1.00 and RMB 6.49 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the nine months ended September 30, 2016 and 2015 were RMB 6.58 to $1.00 and RMB 6.11 to $1.00, respectively.

 

  2.14 CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash and cash equivalents kept with financial institutions in the P.R.C. are not insured or otherwise protected. Should any of those institutions holding the Company’s cash become insolvent, or should the Company become unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution.

 

  2.15 ACCOUNTS RECEIVABLE

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

 

The standard credit period for most of the Company’s clients is three months for sale of goods and commission income and six months for consulting and service income from development contracts. The collection period over 1 year is classified as long-term accounts receivable. Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of September 30, 2016 and December 31, 2015 are $0.

 

 F-10 

 

   

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.16 INVENTORIES

 

Inventories are valued at the lower of cost (determined on a weighted average basis) and net realizable value. Costs incurred in bringing each product to its location and conditions are accounted for as follows:

 

(a)raw materials - purchase cost on a weighted average basis;

 

  (b) manufactured finished goods and work-in-progress - cost of direct materials and labor and a proportion of manufacturing overhead based on normal operation capacity but excluding borrowing costs; and

 

  (c) retail and wholesale merchandise finished goods - purchase cost on a weighted average basis.

 

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs for completion and the estimated costs necessary to make the sale.

 

  2.17 PLANT AND EQUIPMENT

 

Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalization. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

 

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets.

 

Plant and machinery   5 - 10 years
Structure and leasehold improvements   10 - 20 years
Mature seeds and herbage cultivation   20 years
Furniture and equipment   2.5 - 10 years
Motor vehicles   5 - 10 years

 

An item of plant and equipment is removed from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statements of income in the period the item is disposed.

 

  2.18 GOODWILL

 

Goodwill is an asset representing the fair economic benefits arising from other assets acquired in a business combination that are not individually identified or separately recognized. Goodwill is tested for impairment on an annual basis at the end of the Company’s fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting unit. The Company directly acquired MEIJI, which is the holding company of JHST that operates the Hu Plantation. As a result of this acquisition, the Company recorded goodwill in the amount of $724,940. This goodwill represents the fair value of the assets acquired in these acquisitions over the cost of the assets acquired.

 

  2.19 LONG TERM INVESTMENT

 

On October 29, 2014, the Company invested in Huangyuan County Rural Credit Union (“RCU”), Huangyuan County , Xining City, Qinghai Province, the P.R.C. RCU is engaged in the financing and crediting business to agricultural projects for local farmers. The Company has a 5% equity stake in RCU. The Company has no representative on the board of directors to oversee corporate operations. The Company accounts for its long term investment at cost.

   

 F-11 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.20 PROPRIETARY TECHNOLOGIES

 

A master license of stock feed manufacturing technology was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition of stock feed manufacturing technology master license is amortized using the straight-line method over its estimated life of 20 years.

 

An aromatic cattle-feeding formula was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated life of 25 years.

 

The cost of sleepy cods breeding technology license is capitalized as proprietary technologies when technological feasibility has been established. Cost of granting sleepy cods breeding technology license is amortized using the straight-line method over its estimated life of 25 years.

 

Bacterial cellulose technology license and related trade mark are capitalized as proprietary technologies when technological feasibility has been established. Cost of license and related trade mark is amortized using the straight-line method over its estimated life of 20 years.

 

The Company has determined that technological feasibility is established at the time a working model of products is completed. Proprietary technologies are intangible assets of finite lives. Management evaluates the recoverability of proprietary technologies on an annual basis at the end of the Company’s fiscal year, or when impairment indicators arise. As required by ASC Topic 350 “Intangible - Goodwill and Other”, the Company uses a fair-value-based approach to test for impairment.

 

  2.21 CONSTRUCTION IN PROGRESS

 

Construction in progress represents direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until construction is completed and the asset is ready for its intended use.

 

  2.22 LAND USE RIGHTS

 

Land use rights represent acquisition of rights to agricultural land from farmers and are amortized on the straight-line basis over their respective lease periods. The lease period of agricultural land is in the range from 10 to 60 years. Land use rights purchase prices were determined in accordance with the P.R.C. Government’s minimum lease payments on agricultural land and mutually agreed to terms between the Company and the vendors.

 

  2.23 EQUITY METHOD INVESTMENTS

 

Investee entities in which the company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is included in net income. A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. 

 

  2.24 CORPORATE JOINT VENTURE

 

A corporation formed, owned, and operated by two or more businesses as a separate and discrete business or project (venture) for their mutual benefit is considered to be a corporate joint venture. Investee entities, in which the Company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the Company’s share of the earnings or losses of these companies is included in net income.

 

A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to, the absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

   

 F-12 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.25 VARIABLE INTEREST ENTITY

 

A variable interest entity (“ VIE ”) is an entity (investee) in which the investor has obtained less than a majority interest, according to the Financial Accounting Standards Board (FASB). A VIE is subject to consolidation if a VIE meets one of the following three criteria as elaborated in ASC Topic 810-10, Consolidation:

 

(a)equity-at-risk is not sufficient to support the entity’s activities;
(b)as a group, the equity-at-risk holders cannot control the entity; or
(c)the economics do not coincide with the voting interest.

 

If a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined as the person or company with the majority of variable interests. A corporation formed, owned, and operated by two or more businesses (ventures) as a separate and discrete business or project (venture) for their mutual benefit is defined as a joint venture.

 

  2.26 TREASURY STOCK

 

Treasury stock means shares of a corporation’s own stock that have been issued and subsequently reacquired by the corporation. Converting outstanding shares to treasury shares does not reduce the number of shares issued but does reduce the number of shares outstanding. These shares are not eligible to receive dividends. Accounting for excesses and deficiencies on treasury stock transactions is governed by ASC 505-30-30.

 

State laws and federal agencies closely regulate transactions involving a company’s own capital stock, so the purchase of outstanding shares must have a legitimate purpose. Some of the most common reasons for purchasing outstanding shares are as follows:

 

(a)to meet additional stock needs for various reasons, including newly implemented stock option plans, stock for convertible bonds or convertible preferred stock, or a stock dividend.
(b)to make more shares available for acquisitions of other entities.

 

The cost method of accounting for treasury shares has been adopted by the Company. The purchase of outstanding shares and thus converting them into treasury shares is treated as a temporary reduction in shareholders’ equity in view of the expectation to reissue the shares instead of retiring them. When the Company reissues the treasury shares, the temporary account is eliminated. The cost of acquiring outstanding shares for converting into treasury shares is charged to a contra account, in this case a contra equity account that reduces the stockholder equity balance.

  

  2.27 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED

 

The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Property and equipment are not depreciated once classified as held for distribution. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated balance sheets. A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

 

represents a separate major line of business or geographical area of operations

 

is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or

 

is a subsidiary acquired exclusively with a view to resale

 

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of income and other comprehensive income.

 

  2.28 INCOME TAXES

 

The Company accounts for income taxes under the provisions of ASC Topic 740 “Accounting for Income Taxes.” Under ASC Topic 740, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

The provision for income tax is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.

 

Deferred income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

 

ASC Topic 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or for one expected to be taken, in a tax return. ASC Topic 740 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded as tax expense. 

   

 F-13 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.29 POLITICAL AND BUSINESS RISK

 

The Company’s operations are carried out in the P.R.C. Accordingly, the political, economic and legal environment in the P.R.C. may influence the Company’s business, financial condition and results of operations by the general state of the P.R.C.’s economy. The Company’s operations in the P.R.C. are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

  2.30 CONCENTRATION OF CREDIT RISK

 

Cash includes cash at banks and demand deposits in accounts maintained with banks within the P.R.C. Total cash in these banks as of September 30, 2016 and December 31, 2015 amounted to $8,984,093 and $7,022,695, respectively, none of which is covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.

 

The Company had 5 major customers (A, B, C, D & E) whose business individually represented the following percentages of the Company’s total revenue for the year indicated:

 

    Three month ended
September 30, 2016
    Three months ended
September 30, 2015
    Nine month ended
September 30, 2016
    Nine months ended
September 30, 2015
 
                         
Customer A     19.82 %     -       19.56 %     - %
Customer B     16.59 %     16.51 %     14.17 %     15.21 %
Customer C     11.95 %     13.17 %     9.52 %     9.80 %
Customer D     6.68 %     -       7.56 %     13.96 %
Customer E     4.74 %     -       9.58 %     9.94 %
Customer F     -       9.02 %     - %     -  
Customer G     -       8.83 %     - %     -  
Customer H     -       7.20 %     - %     10.27 %
      59.78 %     54.73 %     60.39 %     59.18 %

 

      Percentage
of revenue
   Amount 
Customer A  Organic Fertilizer and Bread Grass Division   19.56%  $62,653,876 
Customer B  Fishery Development  Division   14.17%  $45,394,220 

 

Accounts receivable are derived from revenue earned from customers located primarily in the P.R.C. The Company performs ongoing credit evaluations of customers and has not experienced any material losses to date.

 

The Company had 5 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable:

 

   September 30,
2016
   December 31,
2015
 
Customer A   22.33%   10.12%
Customer B   17.68%   -%
Customer C   10.12%   -%
Customer D   6.86%   -%
Customer E   6.44%   -%
Customer F   -%   13.71%
Customer G   -%   11.31%
Customer H   -%   9.31%
Customer I   -%   8.45%
Customer J   63.43%   52.90%

 

As of September 30, 2016 amounts due from customers A, B and C are $30,315,653, $24,001,497 and $13,739,740, respectively. The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties of its major customers.

 

 F-14 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.31IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

 

In accordance with ASC Topic 360, “Property, Plant and Equipment,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, during each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 2016 and December 31, 2015, the Company determined no impairment losses were necessary.

 

  2.32 EARNINGS PER SHARE

 

As prescribed in ASC Topic 260 “ Earnings per Share, ” Basic Earnings per Share (“ EPS ”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company’s common stock at the average market price during the period.

 

ASC 260-10-55 requires that stock dividends or stock splits be accounted for retroactively if the stock dividends or stock splits occur during the year, or retroactively if the stock dividends or stock splits occur after the end of the period but before the release of the financial statements, by considering it outstanding of the entirety of each period presented. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the year.

 

For the three months ended September 30, 2016 and 2015, basic earnings per share from continuing and discontinued operations attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $1.04 and $1.14, respectively. For the three months ended September 30, 2016 and 2015, diluted earnings per share from continuing and discontinued operations attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.95 and $1.14, respectively.

 

For the three months ended September 30, 2016 and 2015, basic earnings per share from continuing operations attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $0.91 and $0.89, respectively. For the three months ended September 30, 2016 and 2015, diluted earnings per share from continuing operations attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.83 and $0.89, respectively.

 

For the nine months ended September 30, 2016 and 2015, basic earnings per share from continuing and discontinued operations attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $2.45 and $3.02, respectively. For the six months ended September 30, 2016 and 2015, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $2.24 and $3.02, respectively.

 

For the nine months ended September 30, 2016 and 2015, basic earnings per share from continuing operations attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $1.87 and $2.19, respectively. For the six months ended September 30, 2016 and 2015, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $1.72 and $2.19, respectively.

 

  2.33 ACCUMULATED OTHER COMPREHENSIVE INCOME

 

ASC Topic 220 “Comprehensive Income” establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.

 

  2.34 RETIREMENT BENEFIT COSTS

 

P.R.C. state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses when employees have rendered service entitling them to the contribution made by the employer.

 

  2.35 STOCK-BASED COMPENSATION

 

The Company has adopted both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50, “Equity-Based Payments to Non - Employees” using the fair value method in which an entity issues its equity instruments to acquire goods and services from employees and non-employees. Stock compensation for stock granted to non-employees has been determined in accordance with this accounting standard and the accounting standard regarding accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling goods or services, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. This accounting standard allows the “simplified” method to determine the term of employee options when other information is not available. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.

 

 F-15 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.36FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

  Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

  Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

  Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 2016 or December 31, 2015, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the nine months ended September 30, 2016 or 2015.

 

2.37NEW ACCOUNTING PRONOUNCEMENTS

 

The Company does not expect any recent accounting pronouncements to have a material effect on the Company’s financial position, results of operations, or cash flows.

 

In January 2015, FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have material impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new consolidation standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. A reporting entity may apply a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The adoption of ASU 2015-02 did not have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, which simplifies presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU No. 2015-03 will be effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The adoption of ASU 2015-03 did not have a material impact on the Company’s consolidated financial statements.

 

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard is effective for us beginning on January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. The adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial statements.

 

 F-16 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

2.37NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting (ASU 2016-09) to simplify the accounting for share-based payment transactions, including the income tax consequences, an option to recognize gross share-based compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance will be effective for us in the first quarter of 2017, and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

  

 F-17 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION

 

The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as business segments and major customers in consolidated financial statements. The Company operates in five principal reportable segments: Fishery Development Division, HU Plantation Division, Organic Fertilizer and Bread Grass Division, Cattle Farm Development Division and Corporate and Others Division. On October 5, 2016, (i) Jiang Men City A Power Fishery Development Co., Limited (“JFD”) and Tri- Way Industries Limited (“TRW’), part of Fishery Division, were disposed from the Company; and (ii). Capital Award Inc. (“CA”), part of Fishery Development Division, ceased its income from sale of goods - fishery since December 31, 2016. Fishery development division - sale of goods was treated as discontinued division. No geographic information is required as all revenue and assets are located in the P.R.C.

 

 

For the three months ended September 30, 2016
   Continuing   Discontinued     
   operation   operation     
   Fishery       Organic Fertilizer   Cattle Farm       Fishery     
   Development   HU Plantation   and Bread Grass   Development   Corporate and   Development     
   Division(1)   Division (2)   Division (3)   Division (4)   others (5)   Division(1)   Total 
                             
Revenue  $23,377,355   $6,692,140   $48,697,145   $9,658,454   $23,232,486   $12,460,878   $124,118,458 
                                    
Net income (loss)  $10,191,548   $2,479,488   $5,833,910   $1,060,267   $(1,040,511)  $2,767,775   $21,292,477 
                                    
Total assets  $164,123,917   $49,180,420   $350,422,450   $36,538,577   $107,268,695   $8,381,108   $715,915,167 

 

For the three months ended September 30, 2015
   Continuing   Discontinued     
   operation   operation     
   Fishery       Organic Fertilizer   Cattle Farm       Fishery     
   Development   HU Plantation   and Bread Grass   Development   Corporate and   Development     
   Division(1)   Division (2)   Division (3)   Division (4)   others (5)   Division(1)   Total 
                             
Revenue  $28,633,558   $7,375,393   $40,358,733   $9,636,919   $10,061,605   $28,600,191   $124,666,399 
                                    
Net income (loss)  $10,135,999   $3,532,872   $4,207,421   $921,276   $(1,998,490)  $4,723,022   $21,522,100 
                                    
Total assets  $133,282,232   $58,195,820   $303,489,428   $36,149,206   $85,624,327   $9,020,669   $625,761,682 

 

For the nine months ended September 30, 2016
   Continuing   Discontinued     
   operation   operation     
   Fishery       Organic Fertilizer   Cattle Farm       Fishery     
   Development   HU Plantation   and Bread Grass   Development   Corporate and   Development     
   Division(1)   Division (2)   Division (3)   Division (4)   others (5)   Division(1)   Total 
                             
Revenue  $55,776,414   $12,194,399   $124,003,741   $21,555,101   $49,303,780   $57,480,332   $320,313,767 
                                    
Net income (loss)  $19,838,145   $3,611,696   $15,989,599   $2,121,686   $(4,332,930)  $11,467,257   $48,695,453 
                                    
Total assets  $164,123,917   $49,180,420   $350,422,450   $36,538,577   $107,268,695   $8,381,108   $715,915,167 

 

For the nine months ended September 30, 2015
   Continuing   Discontinued     
   operation   operation     
   Fishery       Organic Fertilizer   Cattle Farm       Fishery     
   Development   HU Plantation   and Bread Grass   Development   Corporate and   Development     
   Division(1)   Division (2)   Division (3)   Division (4)   others (5)   Division(1)   Total 
                             
Revenue  $63,584,917   $11,568,406   $122,162,504   $27,424,589   $31,293,682   $74,962,479   $330,996,577 
                                    
Net income (loss)  $23,067,250   $4,482,153   $14,599,210   $1,895,794   $(4,349,017)  $14,891,753   $54,587,143 
                                    
Total assets  $133,282,232   $58,195,820   $303,489,428   $36,149,206   $85,624,327   $9,020,669   $625,761,682 

 

 

 F-18 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Note

 

(1)Operated by Capital Award, Inc. (“CA”) and Jiang Men City A Power Fishery Development Co., Limited (“JFD”).

 

(2)Operated by Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”).

 

(3)Operated by Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”), Qinghai Zhong He Meat Products Co., Limited (“QZH”), A Power Agro Agriculture Development (Macau) Limited (“APWAM”), and Hunan Shenghua A Power Agriculture Co., Limited (“HSA”).

 

(4)Operated by Jiang Men City Hang Mei Cattle Farm Development Co. Limited (“JHMC”) and Macau Eiji Company Limited (“MEIJI”).

 

(5)Operated by Sino Agro Food, Inc. (“SIAF”) and Sino Agro Food Sweden AB (publ) (“SAFS”).

 

 F-19 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

   For the three months ended September 30, 2016 
   Continuing   Discontinued     
   operation   operation     
           Organic                 
   Fishery       Fertilizer and   Cattle Farm       Fishery     
   Development   HU Plantation   Bread Grass   Development   Corporate and   Development     
   Division (1)   Division (2)   Division (3)   Division (4)   others (6)   Division   Total 
Name of entity                                   
Sale of goods                                   
Capital Award, Inc. (“CA”)  $-   $-   $-   $-   $-   $12,460,878   $12,460,878 
                                    
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    6,692,140    -    -    -    -    6,692,140 
                                    
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    5,248,212    -    -    -    5,248,212 
                                    
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    14,054,405    -    -    -    14,054,405 
                                    
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    29,394,528    -    -    -    29,394,528 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    9,658,454    -    -    9,658,454 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    23,232,486    -    23,232,486 
                                    
Consulting and service income for development contracts                                   
Capital Award, Inc. (“CA”)   23,062,838    -    -    -    -    -    23,062,838 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    -    - 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
                                    
Commission and management fee                                   
Capital Award, Inc. (“CA”)   314,517    -    -    -    -    -    314,517 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
   $23,377,355   $6,692,140   $48,697,145   $9,658,454   $23,232,486    12,460,878   $124,118,458 

 

 F-20 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue (Continued):-

 

   For the three months ended September 30, 2015 
   Continuing   Discontinued     
   operation   operation     
           Organic              
   Fishery       Fertilizer and   Cattle Farm      Fishery     
   Development    HU Plantation   Bread Grass   Development   Corporate and   Development    
   Division (1)    Division (2)   Division (3)   Division (4)   others (5)   Division    Total  
Name of entity                                   
Sale of goods                                   
Capital Award, Inc. (“CA”)  $-   $-   $-   $-   $-   $28,600,191   $28,600,191 
                                    
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    7,375,393    -    -    -    -    7,375,393 
                                    
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    4,871,273    -    -    -    4,871,273 
                                    
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    21,284,622    -    -    -    21,284,622 
                                    
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    14,202,838    -    -    -    14,202,838 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    9,636,919    -         9,636,919 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    10,061,605    -    10,061,605 
                                    
Consulting and service income for development contracts                                   
Capital Award, Inc. (“CA”)   28,406,973    -    -    -    -    -    28,406,973 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    -    - 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
                                    
Commission and management fee                                   
Capital Award, Inc. (“CA”)   226,585    -    -    -    -    -    226,585 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
   $28,633,558   $7,375,393   $40,358,733   $9,636,919   $10,061,605   $28,600,191   $124,666,399 

 

 F-21 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

   For the nine months ended September , 2016 
   Continuing   Discontinued     
   operation   operation     
           Organic                 
   Fishery       Fertilizer and   Cattle Farm       Fishery     
   Development   HU Plantation   Bread Grass   Development   Corporate and   Development     
   Division (1)   Division (2)   Division (3)   Division (4)   others (6)   Division   Total 
Name of entity                                   
Sale of goods                                   
Capital Award, Inc. (“CA”)  $-   $-   $-   $-   $-   $57,480,332   $57,480,332 
                                    
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    12,194,399    -    -    -    -    12,194,399 
                                    
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    15,561,982    -    -    -    15,561,982 
                                    
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    35,484,854    -    -    -    35,484,854 
                                    
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    72,956,905    -    -    -    72,956,905 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    21,555,101    -    -    21,555,101 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    49,303,780    -    49,303,780 
                                    
Consulting and service income for development contracts                                   
Capital Award, Inc. (“CA”)   54,727,215    -    -    -    -    -    54,727,215 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    -    - 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
                                    
Commission and management fee                                   
Capital Award, Inc. (“CA”)   1,049,199    -    -    -    -    -    1,049,199 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
   $55,776,414   $12,194,399   $124,003,741   $21,555,101   $49,303,780   $57,480,332   $320,313,767 

 

 F-22 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue (Continued):-

 

   For the nine months ended September 30, 2015 
   Continuing   Discontinued     
   operation   operation     
           Organic                 
   Fishery       Fertilizer and   Cattle Farm       Fishery     
   Development   HU Plantation   Bread Grass   Development   Corporate and   Development     
   Division (1)   Division (2)   Division (3)   Division (4)   others (6)   Division   Total 
Name of entity                                   
Sale of goods                                   
Capital Award, Inc. (“CA”)  $-   $-   $-   $-   $-   $74,962,479   $74,962,479 
                                    
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    11,568,406    -    -    -    -    11,568,406 
                                    
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    13,962,447    -    -    -    13,962,447 
                                    
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    65,109,790    -    -    -    65,109,790 
                                    
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    43,090,267    -    -    -    43,090,267 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    27,424,589    -    -    27,424,589 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    27,507,708    -    27,507,708 
                                    
Consulting and service income for development contracts                                   
Capital Award, Inc. (“CA”)   62,334,261    -    -    -    -    -    62,334,261 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    -    - 
                                    
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    3,785,974    -    3,785,974 
                                    
Commission and management fee                                   
Capital Award, Inc. (“CA”)   716,588    -    -    -    -    -    716,588 
                                    
Macau Eiji Company Limited (“MEIJI”)   534068    -    -    -    -    -    534068 
   $63,584,917   $11,568,406   $122,162,504   $27,424,589   $31,293,682    74,962,479   $330,996,577 

 

 F-23 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of cost of goods sold and cost of services:-

 

COST OF GOODS SOLD

 

   For the three months ended September 30, 2016 
   Continuing
operations
   Discontinued
operations
     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others
(5)
   Fishery
Development
Division (1)
   Total 
Name of entity                                   
Sale of goods                                   
Capital Award, Inc. (“CA”)  $-   $-   $-   $-   $-   $9,291,339   $9,291,339 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    3,009,881    -    -    -    -    3,009,881 
                                    
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    3,063,392    -    -    -    3,063,392 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    9,710,033    -    -    -    9,710,033 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    23,542,313    -    -    -    23,542,313 
Macau Eiji Company Limited (“MEIJI”)   -    -    -    9,119,428    -    -    9,119,428 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    20,576,693    -    20,576,693 
   $-   $3,009,881   $36,315,738   $9,119,428   $20,576,693   $9,291,339   $78,313,079 
                                    

 

COST OF SERVICES

 

   For the three months ended September 30, 2016 
   Continuing   Discontinued     
   operations   operations     
           Organic                 
   Fishery   HU   Fertilizer and   Cattle Farm   Corporate   Fishery     
   Development   Plantation   Bread Grass   Development   and others   Development     
   Division (1)   Division (2)   Division (3)   Division (4)   (5)   Division (1)   Total 
Name of entity                                   
                                    
Consulting and service income for development contracts                                   
                                    
Capital Award, Inc. (“CA”)  $12,450,460   $-   $-   $-   $-   $-   $12,450,460 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    -    - 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
   $12,450,460   $-   $-   $-   $-   $-   $12,450,460 

 

 F-24 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of cost of goods sold and cost of services (Continued):-

 

COST OF GOODS SOLD

 

   For the three months ended September 30, 2015 
   Continuing
operations
   Discontinued
operations
     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others
(5)
   Fishery
Development
Division (1)
   Total 
Name of entity                                   
Sale of goods                                   
Capital Award, Inc. (“CA”)  $-   $-   $-   $-   $-   $23,144,284   $23,144,284 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    2,447,904    -    -    -    -    2,447,904 
                                    
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    2,955,147    -    -    -    2,955,147 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    17,967,937    -    -    -    17,967,937 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    10,809,198    -    -    -    10,809,198 
Macau Eiji Company Limited (“MEIJI”)   -    -    -    8,996,149    -    -    8,996,149 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    8,943,649    -    8,943,649 
   $-   $2,447,904   $31,732,282   $8,996,149   $8,943,649   $23,144,284   $75,264,268 
                                    

 

COST OF SERVICES

 

   For the three months ended September 30, 2015 
   Continuing
operations
   Discontinued
operations
      
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others
(5)
   Fishery
Development
Division (1)
   Total 
Name of entity                                   
                                    
Consulting and service income for development contracts                                   
                                    
Capital Award, Inc. (“CA”)  $17,151,938   $-   $-   $-   $-   $-   $17,151,938 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    -    - 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
   $17,151,938   $-   $-   $-   $-   $-   $17,151,938 

 

 F-25 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of cost of goods sold and cost of services:-

 

COST OF GOODS SOLD

  

   For the nine months ended September 30, 2016 
   Continuing
operations
   Discontinued
operations
     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others
(5)
   Fishery
Development
Division (1)
   Total 
Name of entity                                   
Sale of goods                                   
Capital Award, Inc. (“CA”)  $-   $-   $-   $-   $-   $44,401,078   $44,401,078 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    5,664,598    -    -    -    -    5,664,598 
                                    
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    9,373,214    -    -    -    9,373,214 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    23,879,210    -    -    -    23,879,210 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    55,598,165    -    -    -    55,598,165 
Macau Eiji Company Limited (“MEIJI”)   -    -    -    20,392,263    -    -    20,392,263 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    43,452,904    -    43,452,904 
   $-   $5,664,598   $88,850,589   $20,392,263   $43,452,904   $44,401,078   $202,761,432 

 

COST OF SERVICES 

 

   For the three months ended September 30, 2016 
   Continuing
operations
   Discontinued
operations
      
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others
(5)
   Fishery
Development
Division (1)
   Total 
Name of entity                                   
                                    
Consulting and service income for development contracts                                   
                                    
Capital Award, Inc. (“CA”)  $35,377,800   $-   $-   $-   $-   $-   $35,377,800 
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    -    - 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    -    - 
   $35,377,800   $-   $-   $-   $-   $-   $35,377,800 

 

 F-26 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of cost of goods sold and cost of services:-

 

COST OF GOODS SOLD

 

   For the nine months ended September 30, 2015 
   Continuing
operations
   Discontinued
operations
     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others
(5)
   Fishery
Development
Division (1)
   Total 
Name of entity                                   
Sale of goods                                   
Capital Award, Inc. (“CA”)  $-   $-   $-   $-   $-   $57,904,256   $57,904,256 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    3,592,659    -    -    -    -    3,592,659 
                                    
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    8,187,619    -    -    -    8,187,619 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    49,816,505    -    -    -    49,816,505 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    31,225,451    -    -    -    31,225,451 
Macau Eiji Company Limited (“MEIJI”)   -    -    -    26,121,572    -    -    26,121,572 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    23,914,592    -    23,914,592 
   $-   $3,592,659   $89,229,575   $26,121,572   $23,914,592   $57,904,256   $200,762,654 

 

COST OF SERVICES 

 

   For the nine months ended September 30, 2015 
   Continuing
operations
   Discontinued
operations
     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others
(5)
   Fishery
Development
Division (1)
   Total 
Name of entity                                   
                                    
Consulting and service income for development contracts                                   
                                    
Capital Award, Inc. (“CA”)  $39,063,555   $-   $-   $-   $-   $-   $39,063,555 
                                    
                                    
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    -    - 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    1,404,813    -    1,404,813 
   $39,063,555   $-   $-   $-   $1,404,813   $-   $40,468,368 

 

 F-27 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.INCOME TAXES

 

United States of America

 

The Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and no U.S. corporate tax has been provided for in the consolidated financial statements of the Company.

 

Undistributed Earnings of Foreign Subsidiaries

 

The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly, undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States and no provision for U.S. Federal and State income tax or applicable dividend distribution tax has been provided thereon.

 

The Company appointed US tax professionals to assist in filing income tax returns for the years ended December 31, 2015, 2014 and 2013 in compliance with US Treasury Internal Revenue Code and we had already filed our 2014 and 2013 Tax returns with the Internal Revenue Service (“ IRS”) of USA Government.

 

As of September 30, 2016, the Company reviewed its tax position with the assistance US tax professionals and believed that there would be no taxes and no penalties assessed by the IRS in the United States of America.

 

China

 

Beginning January 1, 2008, the new Enterprise Income Tax (“ EIT ”) law replaced the existing laws for Domestic Enterprises (“ DE’s ”) and Foreign Invested Enterprises (“ FIE’s ”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DE’s and FIE’s. The Company is currently evaluating the impact that the new EIT will have on its financial condition. Beginning January 1, 2008, China unified the corporate income tax rule on foreign invested enterprises and domestic enterprises. The unified corporate income tax rate is 25%.

 

Under new tax legislation in China beginning in January 2008, the agriculture, dairy and fishery sectors are exempt from enterprise income taxes.

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, JFD, HSA, SJAP and QZH since they are exempt from EIT for the nine months ended September 30, 2016 and 2015 as they are within the agriculture, dairy and fishery sectors.

 

Belize

 

CA, CS and CH are international business companies incorporated in Belize, and are exempt from corporate tax in Belize.

 

Hong Kong

 

No Hong Kong profits tax has been provided in the consolidated financial statements of TRW, since these entities did not earn any assessable profits arising in Hong Kong for the nine months ended September 30, 2016, and 2015.

 

Macau

 

No Macau Corporate income tax has been provided in the consolidated financial statements of APWAM and MEIJI since these entities did not earn any assessable profits for the nine months ended September 30, 2016 and 2015.

 

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS did not earn any profits for the nine months ended September 30, 2016 and 2015.

 

No deferred tax assets and liabilities are of September 30, 2016 and December 31, 2015 since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

 F-28 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Provision for income taxes is as follows:

 

   Three months
ended September
30, 2016
   Three months
ended September
30, 2015
   Nine months
ended September
30, 2016
   Nine months
ended September
30, 2015
 
                 
SIAF  $-   $-   $-   $- 
SAFS   -    -    -    - 
TRW   -    -    -    - 
MEIJI and APWAM   -    -    -    - 
JHST, JFD, JHMC, SJAP, QZH and HSA   -    -    -    - 
   $-   $-   $    $- 

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 2016 and 2015. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

 

5.NET INCOME FROM DISCONTINUED OPEARTIONS

 

On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of US$238.32 million from respective third parties and the master technology license at fair value of US$30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before March 31, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in the consolidated statement of profit and loss account of the Company for the year ended December 31, 2016. On October 1, 2016, SIAF took all assets and liabilities of TRW and JFD except plant and equipment - fish farm.

 

Prior to loss of control over TRW group, the Fishery Development Division represented a separate business segment. On October 5, 2016, (i) Jiang Men City A Power Fishery Development Co., Limited (“JFD”) and Tri- Way Industries Limited (“TRW”), part of Fishery Division, were disposed from the Company; and (ii) Capital Award Inc. (“CA”), part of Fishery Development Division, ceased its income from sale of goods - fishery since October 5, 2016. As a result, Fishery Development Division - sale of goods was treated as discontinued operations. The post-tax result of the Fishery Development Division has been disclosed as a discontinued operation in the consolidated statements of income and comprehensive income. Loss of control over TRW and JFD were not subject to business tax of PRC and income tax of PRC and Hong Kong.

 

Net income from discontinued operations

 

   Three months   Three months   Nine months   Nine months 
   ended   ended   ended   ended 
   September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015 
                     
Revenue                    
Sale of goods  $12,460,878   $28,600,191   $57,480,332   $74,962,479 
Cost of sales   (9,291,339)   (23,144,284)   (44,401,078)   (57,904,256)
Gross profit   3,169,539    5,455,907    13,079,254    17,058,223 
                     
General and administrative expenses   (270,028)   (264,824)   (791,347)   (795,407)
Net income from operations   2,899,511    5,191,083    12,287,907    16,262,816 
Interest income/(expenses)   617    1    323    (474)
Net income from discontinued business   2,900,128    5,191,084    12,288,230    16,262,342 
Provision for income taxes   -    -    -    - 
Net income from discontinued operations   2,900,128    5,191,084    12,288,230    16,262,342 
Less: Net income attributable to the non-controlling interest   (132,353)   (468,062)   (820,973)   (1,370,589)
Net income from discontinued operations attributable to Sino Agro Food, Inc. and subsidiaries  $2,767,775   $4,723,022   $11,467,257   $14,891,753 

 

 F-29 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

6.CASH AND CASH EQUIVALENTS

 

   September 30,   December 31, 
   2016   2015 
           
Cash and bank balances  $9,052,566   $7,229,197 

 

7.INVENTORIES

 

As of September 30, 2016, inventories are as follows:

 

   September 30,   December 31, 
   2016   2015 
         
Sleepy cods, prawns, eels and marble goby  $6,440,964   $4,053,458 
Beef and mutton   11,072,408    14,593,458 
Bread grass   2,812,207    1,207,260 
Beef cattle   5,196,769    5,026,404 
Organic fertilizer   14,914,208    10,815,983 
Forage for cattle and consumable   10,069,223    10,328,365 
Raw materials for bread grass and organic fertilizer   13,237,259    15,440,348 
Immature seeds   1,312,818    1,383,431 
   $65,055,856   $62,848,707 

 

8.DEPOSITS AND PREPAYMENTS

 

   September 30,   December 31, 
   2016   2015 
         
Deposits for          
-  purchases of equipment  $6,975,629   $4,963,245 
-  acquisition of land use rights   3,373,110    3,373,110 
- inventories purchases   21,117,003    19,948,867 
- aquaculture contracts   2,261,538    4,340,741 
- consulting service providers and others   8,632,259    9,197,796 
- construction in progress   21,504,658    20,243,172 
- issue of shares as collateral   11,281,100    11,281,100 
Prepayments - debts discounts and others   14,216,699    9,919,126 
Shares issued for employee compensation and overseas professional and bond interest   5,972,917    544,772 
   $95,334,913   $83,811,929 

 

9.ACCOUNTS RECEIVABLE

 

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of September 30, 2016 and December 31, 2015. Bad debts written off for the three months and the nine months ended September 30, 2016, and 2015 are $0.

 

Aging analysis of accounts receivable is as follows:

 

   September 30,
2016
   December 31,
2015
 
         
0 - 30 days  $58,366,544   $49,190,282 
31 - 90 days   33,586,820    29,280,990 
91 - 120 days   29,650,113    19,838,792 
over 120 days and less than 1 year   14,155,595    37,364,354 
over 1 year   -    - 
   $135,759,072   $135,674,418 

 

 F-30 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

10.OTHER RECEIVABLES

 

   September 30,
2016
   December 31,
2015
 
         
Advanced to employees  $452,154   $169,369 
Advanced to suppliers   13,342,763    8,052,235 
Advanced to customers   32,328,157    20,696,433 
Advanced to developers   28,000,000    28,000,000 
Advanced to convertible bond holder   -    2,862,550 
   $74,123,074   $59,780,587 

 

Advanced to employees, suppliers, customers and developers are unsecured, interest free and with no fixed terms of repayment.

 

The Company entered friendly loan agreements with suppliers, customers and developers to assist them to procure project loans.

 

11.PLANT AND EQUIPMENT

 

   September 30,
2016
   December 31,
2015
 
         
Plant and machinery  $5,993,854   $5,889,915 
Structure and leasehold improvements   81,175,169    80,772,440 
Mature seeds and herbage cultivation   23,249,165    14,122,937 
Furniture and equipment   146,690    128,639 
Motor vehicles   926,511    790,434 
    111,491,389    101,704,365 
           
Less: Accumulated depreciation   (9,507,100)   (6,465,955)
Net carrying amount  $101,984,289   $95,238,410 

 

Depreciation expense was $1,142,872, $538,147, $3,406,801 and $2,145,020 for the three months ended and the nine months ended September 30, 2016 and 2015, respectively.

  

12.NON-CURRENT ASSETS HELD FOR SALE

 

On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of $238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before March 31, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the consolidated statements of income and other comprehensive income of the Company for the year ended 31 December 2016. As a result, property and equipment of TRW and JFD was reclassified as non-current assets held for sale

 

   September 30,
2016
   December 31,
2015
 
         
Structure and leasehold improvements  $8,190,474   $8,763,294 
Furniture and equipment   190,634    257,375 
Net carrying amount  $8,381,108   $9,020,669 

 

13.CONSTRUCTION IN PROGRESS

 

   September 30,
2016
   December 31,
2015
 
         
Construction in progress          
- Office, warehouse and organic  fertilizer plant in  HSA  $35,172,563   $26,158,968 
- Oven room, road for production of dried flowers   3,743,636    3,079,766 
- Organic fertilizer and bread grass production plant and office building   21,536,554    11,746,949 
- Rangeland for beef cattle and office building   37,541,265    26,463,249 
- Fish pond   17,777,590    5,339,837 
   $115,771,608   $72,788,769 

   

14.LAND USE RIGHTS

 

Private ownership of agricultural land is not permitted in the P.R.C. Instead, the Company has leased seven lots of land. The cost of the first lot of land use rights acquired in 2007 in Guangdong Province, the P.R.C. was $6,408,289 and consists of 180.26 acres with the lease expiring in 2067. The cost of the second lot of land use rights acquired in 2008 in Guangdong Province, the P.R.C. was $764,128, which consists of 31.84 acres with the lease expiring in 2068. The cost of the third lot of land use rights acquired in 2011 was $12,040,571, which consists of 84.5 acres in Guangdong Province, the P.R.C. with the lease expires in 2037. The cost of the fourth lot of land use rights acquired in 2011 was $35,405,750 which consisted of 287.27 acres in the Hunan Province, the P.R.C. and the leases expire in 2051, 2054 and 2071. The cost of the fifth lot of land use rights acquired in 2012 was $528,240 which consisted of 21.09 acres in Qinghai Province, the P.R.C. and the lease expires in 2051. The cost of the sixth lot of land use rights acquired in 2013 was $489,904 which consisted of 6.26 acres in Guangdong Province, the P.R.C. and the lease expires in 2023. The cost of the seventh lot of land use rights acquired in 2014 was $4,453,665 which consisted of 33.28 acres in Guangdong Province, the P.R.C. and the lease expires in 2044.

 

 F-31 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

14.LAND USE RIGHTS (CONTINUED)

 

   September 30,
2016
   December 31,
2015
 
         
Cost  $64,397,460   $65,961,071 
Less: Accumulated amortization   (8,529,084)   (7,475,396)
Net carrying amount  $55,868,376   $58,485,675 

 

   Amount 
     
Balance @1.1.2015  $69,428,143 
Exchange difference   (3,467,072)
Balance @12.31.2015   65,961,071 
Exchange difference   (1,563,611)
Balance @9.30.2016  $64,397,460 

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 30 to 60 years. Amortization of land use rights was $361,634, $276,988, $1,053,688 and $1,074,539 for the three months and the nine months ended September 30, 2016 and 2015, respectively.

 

15.GOODWILL

 

Goodwill represents the fair value of the assets acquired the acquisitions over the cost of the assets acquired. It is stated at cost less accumulated impairment losses. Management tests goodwill for impairment on an annual basis or when impairment indicators arise. In these instances, the Company recognizes an impairment loss when it is probable that the estimated cash flows are less than the carrying value of the assets. To date, no such impairment loss has been recorded.

 

   September 30,
2016
   December 31,
2015
 
         
Goodwill from acquisition  $724,940   $724,940 
Less: Accumulated impairment losses   -    - 
Net carrying amount  $724,940   $724,940 

 

16.PROPRIETARY TECHNOLOGIES

 

By an agreement dated November 12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock feed and bioorganic fertilizer and its related labels for $8,000,000. On March 6, 2012, MEIJI acquired an aromatic-feed formula technology for the production of aromatic cattle for $1,500,000. On October 1, 2013, SIAF was granted a license to exploit sleepy cods breeding technology to grow out of sleepy cods for $2,270,968 for 50 years. SJAP booked bacterial cellulose technology license and related trademark for $2,119,075 and amortized expenditures for 20 years starting from January 1, 2014.

 

   September 30,
2016
   December 31,
2015
 
         
Cost  $13,710,578   $13,771,527 
Less: Accumulated amortization   (3,417,106)   (2,987,169)
Net carrying amount  $10,293,472   $10,784,358 

 

Amortization of proprietary technologies was $145,055, $141,438, $429,937 and $438,887 for the three months and the nine months ended September 30, 2016 and 2015, respectively.  No impairments of proprietary technologies have been identified for the three months and the nine months ended September 30, 2016 and 2015. 

 

17.INVESTMENT IN UNCONSOLIDATED EQUITY INVESTEE

 

On May 6, 2016, SJAP invested in 30% equity interest in Guangzhou Horan Taita Information Technology Co., Limited (“HTIT”), a company incorporated in P.R.C. for $150,806.

 

   September 30,   December 31, 
   2016   2015 
         
Investment at cost  $149,745   $- 
Share of post acquisition profits   -    - 
   $149,745   $- 

  

 F-32 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

18.LONG TERM INVESTMENT

 

   September 30,
2016
   December 31,
2015
 
         
Investment in Huangyuan County Rural Credit Union  $748,727   $769,941 
Less: Accumulated impairment losses   -    - 
   $748,727   $769,941 

  

19.TEMPORARY DEPOSITS PAID TO ENTITIES FOR EQUITY INVESTMENTS IN FUTURE SINO JOINT VENTURE COMPANIES

 

Intended              
unincorporated  Projects     September 30,   December 31, 
Investee  Engaged     2016   2015 
                 
A  Trade center  *  $4,086,941   $4,086,941 
A  Seafood center  *   1,032,914    1,032,914 
B  Fish Farm 2 GaoQiqiang Aquaculture  *   6,000,000    6,000,000 
C  Prawn farm 1  *   14,554,578    14,554,578 
D  Prawn farm 2  *   9,877,218    9,877,218 
E  Cattle farm 2  *   5,558,057    5,558,057 
         $41,109,708   $41,109,708 

 

The Company made temporary deposits paid to entities for equity investments in future Sino Joint Venture companies (“SJVCs”) engaged in projects development of trade and seafood centers, fish, prawns and cattle farms. Such temporary deposits represented as deposits of the respective consideration required for the purchase of equity stakes of respective future SJVCs. The amounts were classified as temporary because legal procedures of formation of SJVCs have not yet been completed. As of September 30, 2016, the percentages of equity stakes of A (trade and seafood centers), B ( fish farm 2 GaoQiqiang Aquaculture Farm ), C (prawn farm 1), D (pawn farm 2) and E (cattle farm 2) are 31%, 23%, 56%, 29% and 35% respectively.

 

*The above amounts were subject to conversion to an additional equity investment in the investees upon the completion of legal procedures of formation of SJVCs.

 

20.VARIABLE INTEREST ENTITY

 

On September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“ SJAP ”), which was incorporated in the P.R.C. As of September 30, 2016, the Company has invested $2,251,359 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

 

Continuous assessment of the VIE relationship with SJAP

 

The Company may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a VIE. The Company evaluates entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate. A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately fewer voting rights.

 

 F-33 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

20.VARIABLE INTEREST ENTITY (CONTINUED)

 

The Company also quantitatively and qualitatively examined if SJAP is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 2016, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.

 

The reasons for the SJAP qualified as a VIE are as follows:

 

  · Originally, the board of directors of SJAP consisted of 7 members; 3 appointees from Qinghai Sanjiang (one stockholder), 1 from Garwor (one stockholder), and 3 from the Company, such that the Company did not have majority interest represented on the board of directors of SJAP.

 

  · On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the P.R.C. approved the sale and transfer.

 

Consequently Garwor and the Company agreed that the new board of directors of SJAP would consist of 3 members; 1 appointee from Garwor and 2 appointees from the Company, such that the Company now had a majority interest in the board of directors of SJAP. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the Company’s management appointed the chief financial officer of SJAP. As a result, the financial statements of SJAP were included in the consolidated financial statements of the Company.

 

Continuous assessment of the VIE relationship with QZH

 

The Company may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a VIE. The Company evaluates entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate. A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately fewer voting rights.

 

The Company also quantitatively and qualitatively examined if QZH is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if QZH was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 2016, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of QZH’s expected losses or residual returns and that QZH qualifies as a VIE of the Company. As result, the Company has consolidated QZH as a VIE.

 

The reasons for the QZH qualified as a VIE are as follows:

 

  · Originally, SJAP was sole stockholder of QZH, owned 100% equity interest in QZH and controlled directorship of QZH.

 

  · On October 25, 2015, both QZH and new stockholder, Qinghai Quanwang Investment Management Co., Ltd (“ QQI ”) contributed additional capital of $4,157,682 and $769,941, respectively. As of result, SJAP decreased its equity interest from 100% to 86% and QQI owned 14% equity interest. In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoyed interest 6% annually on its capital contribution and did not enjoy any profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% on profit or loss after deduction 6% interest to QQI and enjoyed 100%  voting rights of QZH’s board and stockholders meetings. As of September 30, 2016, the SJAP’s total investment in QZH was $4,645,487.

 

  · Consequently, the Company still indirectly control directorship of QZH, such that the Company now had a majority interest in the directorship of QZH. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the Company’s controlled QZH’s chief financial officer appointment. As a result, the financial statements of QZH were included in the consolidated financial statements of the Company.

 

 F-34 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

21.CONSTRUCTION CONTRACT

 

(i)Costs and estimated earnings in excess of billings on uncompleted contracts

 

   September 30,
2016
   December 31,
2015
 
         
Costs  $12,673,293   $6,487,032 
Estimated earnings   15,772,834    10,995,534 
Less:  Billings   (26,888,414)   (16,175,681)
Costs and estimated earnings in excess of billings on uncompleted contracts  $1,557,713   $1,306,885 

  

(ii)Billings in excess of costs and estimated earnings on uncompleted contracts

  

   September 30,
2016
   December 31,
2015
 
         
Billings  $10,423,613   $146,830,043 
Less:  Costs   (3,853,300)   (85,092,860)
Estimated earnings   (4,923,033)   (53,036,477)
Billing in excess of costs and estimated earnings on uncompleted contracts  $1,647,280   $8,700,706 

 

(iii)Overall

 

   September 30,
2016
   December 31,
2015
 
         
Billings  $37,312,027   $163,005,724 
Less:  Costs   (16,526,593)   (91,579,892)
Estimated earnings   (20,695,867)   (64,032,011)
Billing in excess of costs and estimated earnings on uncompleted contracts  $89,567   $7,393,821 

 

22.OTHER PAYABLES

  

   September 30,
2016
   December 31,
2015
 
         
Due to third parties  $5,417,998   $312,782 
Due to debts loan   13,052,702    4,797,332 
Promissory notes issued to third parties   6,369,950    2,200,000 
Due to local government   741,240    2,279,797 
   $25,581,890   $9,589,911 
           
Less: Amount classified as non-current liabilities          
Due  to debts loan   (19,442,652)   (4,797,332)
Amount classified as current liabilities  $6,139,238   $4,792,579 

 

Due to third parties are unsecured, interest free and have no fixed terms of repayment.

 

(i)The Company issued 1,191,537 shares of common stock ranging from $4.26 to $5.25 as collateral to secure debts loan of $8,255,370 from third party The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. All collateralized shares are non-cumulative without right to declared dividend in the future.

 

 F-35 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

23.BORROWINGS

 

There are no provisions in the Company’s bank borrowings and long term debts that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the Company’s business. Under certain agreements, the Company has the option to retire debt prior to maturity, either at par or at a premium over par.

 

Short term bank loans  

 

Name of lender  Interest rate   Term   September 30,
2016
   December 31,
2015
 
                 
Agricultural Development Bank of China   6.4%   January 3, 2014 - December 17, 2018   $619,195^*  $616,333^*
Huangyuan County Branch, Xining City, Qinghai Province, the P.R.C.                    
Da Tong National Development Rural  Bank Limited        

July 14,2016-May 28, 2017

           
    10%        6,738,544^+   - 
Da Tong County, Xining City, Qinghai Province, the P.R.C.                    
Agricultural Development Bank of China   4.785%   October 28, 2015 - October 27, 2016    -    3,849,707^*
Huangyuan County Branch,                    
Xining City, Qinghai Province, the P.R.C.                    
             $7,357,739   $4,466,040 

  

Long term debts  

 

Name of lender  Interest rate   Term   September 30,
2016
   December 31,
2015
 
                 
GanGuo Village Committee   12.22%   June 2012 - June 2017   $-   $169,387 
Bo Huang Town                    
Huangyuan County,                    
Xining City, Qinghai Province, the P.R.C.                    
                     
Agricultural Development Bank of China   6.4%   January 3, 2014 - December 17, 2018    1,347,709^*#   2,001,848^*#
Huangyuan County Branch,                    
Xining City, Qinghai Province, the P.R.C.                    
Less: The current portion reclassified as short term debts             (619,195)   (616,333)
             $728,514   $1,554,902 

 

The above note agreements contained regular provisions requiring timely repayment of principals and accrued interests, payment of default interest in the event of default, and without specific financial covenants. Management of the Company believes the Company is in material compliance with the terms of the loan agreements.

 

^personal and corporate guaranteed by third parties.
*secured by land use rights with net carrying amount of $436,253 (12.31.2015: $471,048).   + secured by property and equipment with net carrying amount of $1,058,050 (12.31.2015; $ Nil) and land use rights with net carrying amount of $ 367,747 (12.31.2015: $Nil).
#repayable $619,195 and $769,182 in  2017 and 2018, respectively.

 

 F-36 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

24.NEGOTIABLE PROMISSORY NOTES

 

In August and October 2015, TRW issued negotiable promissory notes to fund companies and individuals for $3,854,550 and the company acted as guarantor for repayment. During the nine months ended September 30, 2016, no promissory notes were repaid and negotiated into shares of the Company.

 

   September 30,
2016
   December 31,
2015
 
           
Negotiable promissory notes  $885,997   $865,968 

 

Issuer: Tri-way Industries Limited ("TRW")
Principal amount: $814,500
Interest payable: $71,497
Interest rate: 2.50% - 2.6% per month on principal amount. Interest shall be calculated on the basis of a 30/360 day count convention.
Default interest rate: 15% per month on principal amount. Interest shall be calculated on the basis of a 30/360 day count convention.
Interest payment: Accrued interest on the principal amount shall be paid by cash  in arrears on each interest payment date.
Issue date: August 29, 2015 and October 12, 2015.
Repayment date: Repaid in full within 283 calendar days from the issue of notes.
Conversion option: Notes holders can exercise at any time from and including the day falling 60 calendar days from the date of the notes, upon the note holders giving not less than 5 business day prior written notices to TRW and the Company. the principal amount shall be converted to shares of the Company. The TRW may at their own discretion choose to settle such conversion option with newly issue shares or existing shares, at their sole discretion. In the event a dividend, share split or consolidation or spin-off (each a Corporate Event") from the Company, the conversion price shall be adjusted to provide the same economic value to the notes holders as if such Corporate Event did not occur. To the maximum, the above notes can be negotiated for 104,642 shares of Common Stock.
Security: Corporate guarantee by the Company.

 

 F-37 

 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

25.CONVERTIBLE NOTE PAYABLES

 

On August 29, 2014, the Company completed the closing of a private placement financing transaction with an accredited investor, which purchased a 10.5% Convertible Note (the “Note”) in the aggregate principal amount of up to $33,300,000. The Company received the total advance of $11,632,450. The Company shall offer investor a discount equal to 25% of the amount of the principal advanced by the investor.

 

Interest on the note shall accrue on the outstanding principal balance of this Note from August 29, 2014. Interest shall be payable quarterly on the last day of each of March, June, September and December commencing September 30, 2014 provided, however, that note holder may elect to require the Company to issue to the note holder a promissory note in lieu of cash in satisfaction of any interest due and payable at such time. Any interest payment note shall be subject to the same terms as the note. The note has a maturity date of February 28, 2020.

 

The note is convertible, at the discretion of the note holder, into shares of the Company’s common stock (i) at any time following an Event of Default, or (ii) for a period of thirty (30) calendar days following October 31, 2015 and each anniversary thereof, at an initial conversion price per share of $1.00, subject to adjustment for stock splits, reverse stock splits, stock dividends and other similar transactions and subject to the terms of the note. As long as the note is outstanding, the investor shall have a right of first refusal, exercisable for thirty (30) calendar days after notice to the note holder, to purchase securities proposed to be offered and sold by the Company.

  

   September 30,
2016
   December 31,
2015
 
         
10.50% convertible note of maturity date February 28, 2020  $23,496,718   $34,904,739 

 

The Company calculated the fair value of the convertible note and the beneficial conversion feature utilizing the Discounted Cash Flows model at the date of the issuance of convertible note. The relative fair values were allocated to the liability and equity components of the debt. Accordingly, a discount was created on the debt and this discount will be amortized to interest expense over the life of the debt. Debt premium of $238,287, $378,788, $728,216 and $838,832 was amortized for the three months and the nine months ended September 30, 2016 and 2015, respectively.

 

As of September 30, 2016, there was $21,211,340 (December 31, 2015: $32,666,666) principal outstanding and accrued interest in the amount of $2,285,378 (December 31, 2015: 2,238,073) that was owed under the terms of the convertible note.

 

The above note agreement contained regular provisions requiring timely repayment of principals and accrued interests, payment of default interest in the event of default, default and optional conversion and without specific financial covenants. Management of the Company believes the Company is in material compliance with the terms of the convertible note agreement.

 

The Company calculated professional service compensation of $1,500,000 in respect of convertible note issue, and recognized $0, $375,000, $0 and $1,125,000 for the three months and the nine months ended September 30, 2016 and 2015. As of September 30, 2016 and December 31, 2015, the deferred compensation balance was $0.

 

 F-38 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

26.SHAREHOLDERS’ EQUITY

 

The Group’s share capital as of June 30, 2016 and December 31, 2015 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as of that date.

 

On March 22, 2010, the Company designated 100 shares of Series A preferred stock at a par value per share of $0.001. As of the same date, 100 shares of Series A preferred stock were issued at $1 per share for cash in the amount of $100.

 

The Series A preferred stock:

  (i) does not pay a dividend;
  (ii) votes together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders. Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80%, which is allocated to the outstanding shares of Series A Preferred Stock; and
  (ii) ranks senior to common stockholders, holders of Series B convertible preferred stockholders and any other stockholders on liquidation.

 

The Company has designated 100 shares of Series A preferred stock with 100 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively.

 

The Series B convertible preferred stock:

 

On March 22, 2010, the Company designated 7,000,000 shares of Series B convertible preferred stock at a par value per share of $0.001. The Series B convertible preferred stock is redeemable, the stockholders are not entitled to receive any dividend and voting rights but rank senior over common stockholders on liquidation, and can convert to common stock on a one for one basis at any time. On June 26, 2010, 7,000,000 shares of common stock were surrendered for cancellation and the Company issued 7,000,000 shares of Series B convertible preferred stock at $9.90 per share. Pursuant to share exchange agreement made as of December 22, 2012, between the Company and a stockholder, Capital Adventure Inc., a holder of 3,000,000 shares of common shares, with the consent of Board of Directors, to exchange for 3,000,000 shares of Series B convertible preferred stock on a one-for-one basis. As of December 23, 2012, 3,000,000 shares of Series B convertible preferred stock were issued to Capital Adventure Inc., for the exchange of its holding of 3,000,000 shares of common stocks. As of December 31, 2012, 3,000,000 shares of common stocks were still not returned to the Company. On March 27, 2013, 3,000,000 Series B convertible preferred stock were cancelled. On December 17, 2014, the Company approved an amendment to certificate designation in respect of Series B preferred stock. Pursuant to the above new amendment, each holder of Series B preferred stock shall have the rights, at any time or from time to time, to convert each 9.9 shares of Series B preferred to one fully paid and non-assessable share of common stock of par value $0.001 per share. On June 15, 2015, Series B preferred stockholder exercised at the above conversion ratio to convert 7,000,000 shares of Series B preferred stock to 707,070 shares of common stock.

 

There were 0 shares of Series B convertible preferred stock issued and outstanding as of September 30, 2016 and December 31, 2015, respectively.

 

 F-39 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

26.SHAREHOLDERS’ EQUITY (CONTINUED)

 

The Series F Non-Convertible Preferred Stock:

 

  (i) is not redeemable subject to (iv);
  (ii) except for (iv), with respect to dividend rights, rights on liquidation, winding up and dissolution, rank junior and subordinate to ( a) all classes of Common Stock,(b) all other classes of Preferred Stock and (c) any class or series of capital securities of the Company.
  (iii) Shall not entitled to receive any further dividend; and
  (iv) on May 30, 2014, the holders of shares of Series F Non-Convertible Preferred Stock with coupon shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share. Upon redemption, the Holder shall no longer own any shares of Series F with coupon that have been redeemed, and all such redeemed shares shall disappear and no longer exist on the books and records of the Company; redeemed shares of Series F which no longer exist upon redemption shall thereafter be counted toward the authorized but unissued “blank check” preferred stock of the Company.

 

On August 22, 2012, the Company’s Board of Directors declared that the Company’s stockholders were entitled to receive one share of restricted Series F Non-convertible Preferred Stock for every 100 shares of Common Stock owned by the stockholders as of September 28, 2012, with lesser or greater amounts being rounded up to the nearest 100 shares of Common Stock for purpose of the computing the dividend. The holders of record of shares of Series F Non-Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2014. However, the Company was unable to issue the Series F Non-convertible Preferred Stock as originally contemplated. Consequently, The Company’s transfer agent was instructed to note in its record date rather than actual issue the Preferred F shares. On June 14, 2014, the Company announced the delay in payment of the coupon until May 30, 2015. The company reserved the excess over the nominal amount of the Series F Non-convertible Preferred Stock of $3,124,737 as Series F Non-convertible Preferred Stock redemption payable. As of May 30, 2015, payment on the F series shares has been made, and respective shares cancelled, accordingly.

 

As a result, total issued and outstanding of Series F Non-Convertible Preferred Stock as of September 30, 2016 and December 31, 2015 are 0 shares and grand total issued and outstanding preferred stock as of September 30, 2016 and December 31, 2015 are 100 shares, respectively.

Common Stock:

 

On November 10, 2014, the Company approved an amendment to the Corporation’s Articles of Incorporation to effectuate a reverse stock split (the “Reverse Split”) of the Corporation’s common stock, par value $0.001 per share (the “Common Stock”) affecting both the authorized and issued and outstanding number of such shares by a ratio of 9.9 for 1. The Reverse Split became effective in the State of Nevada on December 16, 2014. Subsequent to the December 31, 2014, the Board of directors and the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its authorized shares of Common Stock from 17,171,716 to 22,727,273.

 

During the year ended December 31, 2015, the Company issued (i) 100,000 shares of common stock for $868,000 at $8.68 per share to settle debts due to third parties. The Company executed several agreements with third parties to raise debts loan by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of 132,000, $270,586 and $1,318,947 has been credited to consolidated statements of income as other income for the years ended December 31, 2015, 2014 and 2013, respectively; (ii) 753,304 shares of common stock ranging from $6.96 to $8.91 as collateral to secure debts loan of $4,797,332, and the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued, and all collateralized shares are non-cumulative without right to declared dividend in the future; (iii) 1,135,000 shares of common stock ranging from $8.75 to $12.50 as collateral to secure trade finance facility amounting to the extent of $11,281,100, and the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued and such shares returned to treasury stock after the contract period of three years (iv) 153,392 shares at $11.13 per share and 75,002 shares at $14.20 per share were issued for reverse split adjustments; (v) 47,787 shares of common stock valued to employees and directors at fair value of $15.20 per share for $726,315 for employee compensation; 7,000,000 shares of Series B preferred stock were converted into 707,070 shares under terms of issue; and (vi) cancelled 514 shares for $10.97 per share for reverse splits adjustments.

 

(ii)During the nine months ended September 30, 2016, the Company (i) issued 1,198,778 shares of common stock valued to employees and directors at fair value of $5.98 per share for $7,169,823 for employee compensation; (ii) issued 132,787 shares of common stock valued to professionals at fair value of $5.98 per share for $794,066 for service compensation.

 

The Company has 21,456,859 and 20,133,757 shares of common stock issued as of November 14, 2016 and December 31, 2015, respectively.

 

 F-40 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

27.OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $634 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2017; (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $12,733, its lease expiring on July 8, 2018; (iii) 1,555 square feet of staff quarters in Linli District, Hunan Province, P.R.C. for a monthly rent of $163, its lease expiring on May 1, 2016; and (iv) 430 square feet of shared office in Stockholm, Sweden, for a monthly rent of $11,800, its lease expiring on December 31, 2020.

 

Lease expense was $74,416, $40,591, $226,524 and $121,773 for the three months and the nine months ended September 30, 2016 and 2015, respectively.

 

The future minimum lease payments as of September 30, 2016, are as follows:

 

Year ending December 31, 2016  $39,205 
Thereafter   225,268 
   $264,473 

   

28.STOCK BASED COMPENSATION

  

On May 6, 2015, the Company issued directors and employees a total of 47,787 shares of common stock valued at fair value of $15.20 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $15.20 per share.

 

The Company calculated stock based compensation of 3,486,428 and recognized $3,123,247 for the year ended December 31, 2015. As of December 31, 2015, the deferred compensation balance for staff was $363,181 and the deferred compensation balance of $363,181 was to be amortized over 6 months beginning on January 1, 2016.

 

On May 10, 2016, the Company issued directors and employees a total of 1,198,778 shares of common stock valued at fair value of $5.98 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $5.98 per share. On the same date, the Company issued professionals a total of 132,787 shares of common stock valued at fair value of $5.98 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $5.98 per share.

 

The Company calculated stock based compensation of $4,246,495 for the nine months ended September 30, 2015.

 

The Company recognized $1,990,972, $1,123,030, $2,354,153 and $2,883,096 for the three months and the nine months ended September 30, 2016 and 2015, respectively. As of September 30, 2016, the deferred compensation balance for staff was $5,972,069 and the deferred compensation balances of $5,972,069 were to be amortized over 9 months respectively beginning on October 1, 2016.

 

29.CONTINGENCIES

 

As of September 30, 2016 and December 31, 2015, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated balance sheets, consolidated statements of income and other comprehensive income, and consolidated statements of cash flows.

 

In December 31, 2015 the Company entered into loan and pledge agreement with a Shanghai, P.R.C. based lender (the “lender”) The lender has various trading facilities and has agreed to allow the Company or its nominee to use parts of trading facilities up to an amount of $20 million (31.12.2015: $20million) to be used in tranches and revolved up to a period of three years, and as of September 30, 2016 of which $29,447,010 (31.12.2015: $7,478,375) was utilized. The trade finance agreement contained regular provisions requiring timely repayment of principals and accrued interests, payment of default interest in the event of default, and without specific financial covenants. Management of the Company believes the Company is in material compliance with the terms of the trade finance agreement.

 

30.RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the nine months ended September 30, 2016 and 2015, the Company had the following significant related party transactions:-

 

Name of related party   Nature of transactions
     
Mr. Solomon Yip
Kun Lee,
Chairman
  Included in due to a director, due to Mr. Solomon Yip Kun Lee is $566,283 and $211,247 as of September 30, 2016 and December 31, 2015, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

 F-41 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

31.EARNINGS PER SHARE

 

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including convertible preferred stock, stock options and warrants, in the weighted average number of common shares outstanding for the year, if dilutive. The numerators and denominators used in the computations of basic and dilutive earnings per share are presented in the following table:

 

   Three months
ended September 30,
2016
   Three months
ended September 30,
2015
 
BASIC          
           
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
           
Net income used in computing basic earnings per share -Continuing and discontinued operations  $21,292,477   $21,522,100 
-Continuing operations  $18,524,702   $16,799,078 
Basic earnings per share -Continuing and discontinued operations  $1.04   $1.14 
-Continuing operations  $0.91    0.89 
           
Basic weighted average shares outstanding   20,376,225    18,822,876 

 

   Three months
ended September 30
2016
   Three months
ended September 30,
2015
 
DILUTED          
Numerator for basic earnings per share attributable to the Company’s common stockholders:           
Net income used in computing basic earnings per share -Continuing and discontinued  operations   $21,292,477   $21,522,110 
Convertible note interest    404,877    - 
Net income used in computing diluted earnings per share   $21,697,354   $21,522,110 
           
Diluted earnings per share   $0.95   $1.14 
           
Basic weighted average shares outstanding      20,376,225    18,822,876 
           
Add: weight average of common stock convertible from convertible note payable      2,378,667    - 
Diluted weighted average shares outstanding      22,754,892    18,822,876 

 

   Three  months
ended September 30,
2016
   Three months
ended September 30,
2015
 
DILUTED           
Numerator for basic earnings per share attributable to the Company’s common stockholders:           
Net income used in computing basic earnings per share -Continuing operations   $18,524,702   $16,799,078 
Convertible note interest    404,877    - 
Net income used in computing diluted earnings per share   $18,929,579   $16,799,078 
           
Diluted earnings per share   $0.83   $0.89 
           
Basic weighted average shares outstanding   20,376,225    18,822,876 
           
Add: weight average of common stock convertible from convertible note payables   2,378,667    - 
Diluted weighted average shares outstanding   22,754,892    18,822,876 

 

For the three months ended September 30, 2016, full dilution effect of convertible note of $23,496,718 was taken into account for calculation of the diluted earnings per share because convertible note holder can exercise the right to exercise to convert to common stock by giving 1 month notice after October 1, 2015 under terms of convertible note agreement.

 

For the three months ended September 30, 2015, full dilution effect of convertible note of $597,813 was not taken into account for calculation of the diluted earnings per share because convertible note holder is restricted the right to exercise to convert to common stock before October 1, 2015 under terms of convertible note agreement.

 

 F-42 

 

 

SINO AGRO FOOD, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

31.EARNINGS PER SHARE (CONTINUED)

 

   Nine months
ended September 30,
2016
   Nine  months
ended September 30,
2015
 
BASIC          
           
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
           
Net income used in computing basic earnings per share -Continuing and discontinued operations  $48,695,453   $54,587,143 
-continued operations  $37,228,196   $39,695,390 
Basic earnings per share -Continuing and discontinued operations  $2.45   $3.02 
-Continued operations  $1.87   $2.19 
           
Basic weighted average shares outstanding   19,900,082    18,089,629 

 

   Nine months
ended September 30,
2016
   Nine months
ended September 30,
2015
 
DILUTED          
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
Net income used in computing basic earnings per share  $48,695,453   $54,587,143 
Convertible note interest   1,466,044    - 
Net income used in computing diluted earnings per share  $50,161,497   $54,587,143 
           
Diluted earnings per share  $2.24   $3.02 
           
Basic weighted average shares outstanding   19,900,082    18,089,629 
           
Add: weight average of common stock converted from convertible note payables   2,534,765    - 
Diluted weighted average shares outstanding   22,434,847    18,089,629 

 

   Nine months
ended September 30,
2016
   Nine months
ended September 30,
2015
 
DILUTED          
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
Net income used in computing basic earnings per share - Continuing operations  $37,228,196   $39,695,390 
Convertible note interest   1,466,044    - 
Net income used in computing diluted earnings per share  $38,694,240   $39,695,390 
           
Diluted earnings per share  $1.72   $2.19 
           
Basic weighted average shares outstanding   19,900,082    18,089,629 
           
Add: weight average of common stock convertible from convertible note payables   2,534,765    - 
Diluted weighted average shares outstanding   22,434,847    18,089,629 

 

For the nine months ended September 30, 2016, full dilution effect of convertible note of $23,496,718 was taken into account for calculation of the diluted earnings per share because convertible note holder can exercise the right to exercise to convert to common stock by giving 1 month notice after October 1, 2015 under terms of convertible note agreement.

 

For the nine months ended September 30, 2015, full dilution effect of convertible note of $35,468,110 was not taken into account for calculation of the diluted earnings per share because convertible note holder is restricted the right to exercise to convert to common stock before October 1, 2015 under terms of convertible note agreement.

 

32.SUBSEQUENT EVENTS

 

On October 5, 2016, the Company loss of control over TRW and JFD. The Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries, and gain on deemed disposal of subsidiaries was recorded. CA ceased its income from sale of goods - fishery since October 5, 2016.

  

 F-43 

 

  

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance or achievements in 2016 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this Form 10-Q relating to the Company’s business, financial performance, business strategy, recently announced transactions and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the impact of any litigation or infringement actions brought against us; competition from other providers and products; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Readers of this Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

 

You should read the following discussion and analysis of the financial condition and results of operations of the Company together with the financial statements and the related notes presented in Item 1 of this Form 10-Q.

 

Description and interpretation and clarification of business category on the consolidated results of the operations

 

The Company’s strategy is to manage and operate its businesses under five (5) business divisions or units on a standalone basis, namely:

 

Beef & Organic Fertilizer Division (SJAP, QZH and HSA)
Plantation Division (JHST)
Cattle Farm Division (MEIJI and JHMC)
Corporate & Others Division (SIAF)
Fishery Division (CA)

 

A summary of each business division is described below:

 

lBeef and Organic Fertilizer Division refers to:

 

  (i) The operation of SJAP in manufacturing and sales of organic fertilizer, bulk livestock feed, concentrated livestock feed, and the sales of live cattle inclusive of: (a) cattle that are not being slaughtered in our own slaughter house operated by Qinghai Zhong He Meat Products Co., Limited (“QZH”) are sold live to third party livestock wholesalers and, (b) cattle that are sold to QZH and slaughtered and deboned and packed by QZH; and the sales of meats deboned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and our own retail butcher stores. QZH is a fully owned subsidiary of our partially owned subsidiary Qinghai Sanjiang A Power Agriculture Co., Ltd. (“SJAP”); as such, the financial statements of these three companies (SJAP, QZH and HSA) are consolidated into our wholly owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“APWAM”), as one entity. SJAP and QZH are both variable interest entities over which we exercise significant control.

 

  (ii) The operation of Hunan Shenghua A Power Agriculture Co. Ltd. (“HSA”) in manufacturing and sales of organic fertilizer.

 

lPlantation Division refers to the operations of Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd. (“JHST”) in the HU Plantation business where dragon fruit flowers (dried and fresh) and immortal vegetables are sold to wholesale and retail markets. JHST’s financial statements are consolidated into the financial statements of Macau EIJI Company Ltd. (“MEIJI”) as one entity.

 

lCattle Farm Division refers to the operations of Cattle Farm 1 under Jiangmen City Hang Mei Cattle Farm Development Co. Ltd (“JHMC”) where cattle are sold live to third party livestock wholesalers who sell them mainly to Guangzhou and Beijing livestock wholesale markets. The financial statements of JHMC are consolidated into MEIJI as one entity along with MEIJI’s operation in the consulting and service for development of other cattle farms (e.g., Cattle Farm 2) or related projects.

 

 - 1 - 

 

  

lCorporate & Others Division refers to the business operations of Capital Award Inc and Sino Agro Food, Inc., including import/export business and consulting and service operations provided to projects that are not included in the above categories, and not limited to corporate affairs.

 

lFishery Division refers to the operations of Capital Award Inc. (“Capital Award” or “CA”) covering its engineering, technology and consulting service management of fishery farms and seafood sales operations and marketing, where;

 

Capital Award generates revenues from providing engineering consulting services as turnkey contractors to owners and developers of fishery projects that are being designed and engineered into turnkey contracts by Capital Award in China using its A Power Module Technology Systems (“APM”) as follows:

 

(A). Engineering and Technology Services; via Consulting and Service Contracts (“CSC’s”) for the development, construction, and supply of plant and equipment, and management of fishery (and prawn or shrimp) farms and related business operations.

 

(B). Seafood Sales from CA’s projected farms

 

Capital Award generates following sales revenues from:

 

(1). Sales to JFD (“Fish Farm 1” or “FF1”), which is a Sino Foreign Joint Venture Company (“SFJVC”), and sales derived from seafood sold by JFD (currently, only the JFD subsidiary is a SFJVC), being consolidated into our wholly owned Hong Kong subsidiary Tri-way Industries Ltd. (“TRW”) as one entity.

 

FF1 generates sales from its production of (a) its in-door APM farm with 16 APM production units and (b) its open dam farms producing fish and prawns from 310 Mu (52 acres) of land leased from Zhongshan A Power Prawn Culture Farms Development Co. Ltd. (“ZSAPP,” “Prawn Farm 2” or “PF2”).

 

(2). Sales to and sales derived from seafood from the unincorporated companies, including Enping City A Power Prawn Culture Development Co. Ltd. (“EBAPCD,” “Prawn Farm 1” or “PF1”) and ZSAPP, are accounted for independently as follows:

 

CA and PF1: (a) CA purchases prawn and/or fish fingerling and feed stocks from third party suppliers and resells them to PF1 at variable small or no profit margins and (b) CA purchases matured prawns and fish from PF1 and sells to third parties (wholesale markets)

 

PF1 generates sales from its production of (a) its indoor APM farm with 4 APM production units completed in 2014 and 16 APM production units from Q3 2015, onward and (b) its open dam farms producing fish and prawns from a 290 Mu (or 48 acres) of land leased from PF2.

 

CA and PF2: (a) CA earns commission from the sale of prawn fingerlings that are sold by PF2 to third parties, and in this respect PF2 produces its own prawn fingerlings as compared to CA’s purchasing them from PF2 and reselling them to PF1 or FF1, as described above, and (b) CA purchases matured prawns and fish from PF2 and sells to third parties (wholesale markets).

 

PF2 has 6 indoor APM production units producing mainly prawn fingerling and an open dam farms situated on about 400 Mu (about 66 acres) producing prawns and fish.

 

 - 2 - 

 

 

CONSOLIDATED RESULTS OF OPERATIONS

 

Part A. Unaudited Income Statements of Consolidated Results of Operations for three months ended September 30, 2016 compared to for three months ended September 30, 2015.

 

A (1) Income Statements (Unaudited)

 

In $  Three months
ended
   Three months
ended
        
   Sept. 30. 2016   Sept. 30. 2015   Difference   Note
Continuing operations                  
Revenue   111,657,580    96,066,208    15,591,372   1
Consulting, services, commission and management fee   23,377,355    28,633,558    -5,256,203   1
Sale of goods   88,280,225    67,432,650    20,847,575   1
Cost of goods sold and services   81,472,200    69,271,922    12,200,278   2
Consulting, services, commission and management fee   12,450,460    17,151,938    -4,701,478   2
Sale of goods   69,021,740    52,119,984    16,901,756   2
Gross Profit   30,185,380    26,794,286    3,391,094   3
Consulting, services, commission and management fee   10,926,895    11,481,620    -554,725   3
Sale of goods   19,258,485    15,312,666    3,945,819   3
Other income -expenses)   292,053    -581,688    873,741    
General and administrative expenses   -4,741,193    -3,687,098    -1,054,095   4
Net income from continuing operations   25,736,240    22,525,500    3,210,740    
Net income from discontinuing operations   2,900,128    5,191,084    -2,290,956    
EBITDA   31,298,406    30,001,773    1,296,633    
Depreciation and amortization -D&A)   -1,649,561    -956,573    -692,988   5
EBIT   29,648,845    29,045,200    603,645    
Net Interest   -1,012,477    -1,328,616    316,139    
Tax   0    0    0    
Net Income   28,636,368    27,716,584    919,784    
Non - controlling interest   -7,343,891    -6,194,484    -1,149,407   7
Net income to SIAF Inc. and subsidiaries   21,292,477    21,522,100    -229,623    
Weighted average number of shares outstanding                  
- Basic   20,376,225    18,822,876    1,553,349    
- Diluted   22,754,892    18,822,876    3,932,016    
Earnings Per Share from continuing and discontinuing operations                 8
- Basic   1.04    1.14    -0.10    
- Diluted   0.95    1.14    -0.19    
                   
Earnings Per Share from continuing operations                  
- Basic   0.91    0.89    0.02    
- Diluted   0.83    0.89    -0.06    

 

 - 3 - 

 

  

Overview of Q3 2016compared to Q3 2015 (as illustrated in Table 1A above):

 

  l Overall total revenues of increased by $1.60 million (or 16%) generating over $88.28 million from sales of goods and $23.38 million from Consulting and Service Division. However, overall gross profit increased marginally by $3.39 million (or 13%) mainly due to the significant improved results from following segments:

  

  (1) Import & Trading (Corporate) sector generated gross profit of $2,655,793 in (Q3 2016) to (Q3 2015)’s $1,117,956, (an increase of 137.6%)
  (2) SJAP’s (Sales of live cattle, bulk feed, concentrated feed and fertilizer collectively) generated gross profit of $4,334,372 in (Q3 2016) from (Q3 2015)’s $3,316,685 (an increase of 30.7%)
  (3) QZH (of SJAP)’s locally slaughtered lambs and imported beef sector collectively generated gross profit of $5,664,781 (in Q3 2016) from (Q3 2015)’s $ 3,109,760 (an increase of 82.2%)

 

lSales revenues from the Consulting & Services division decreased by $5.26 million (or 18.4%) with a marginal decrease in gross profit by $0.55 million primarily due to increased revenues from the development of the Zhongshan New Prawn Farm project, whereas developments on other farms were slow during the quarter.

 

lYear-over-year quarterly results show net income increasing by $919,784 from 27,716,584 (Q3 2015) to 28,636,368 (Q3 2016), primarily resulting from the improved segments mentioned above and the explanation below of the higher administration expenses reducing part of the net incomes during the Quarter.

 

•      The increase in general and administration expenses, mainly due to expenses incurred by the Corporate Division in carrying out various corporate exercises (e.g., seeking of new sources of financing, upgrading of listing status, etc.), was $1.05 million to $4.74 million compared to $3.69 millions of incurred during Q3 2015.

 

Therefore, overall the results remain promising, showing improvements in most segments, including imported business activity, with exceptions for areas such as SJAP’s Live Cattle sector. In addition, sales from the Fishery segment had decreased for previously cited reasons, which are summarized in a later chapter of this report.

 

Notes to Table A.1’s 1, 2 & 3:

 

(A): Information of Note (1, 2 & 3) Sales, cost of sales and gross profit and analysis:

 

lThe Company’s revenues were generated from (A) Sales of Goods and (B) Consulting and Services provided in project and business developments covering engineering, construction, supervision, training, managements and technology etc.

 

lBeef and Organic Fertilizer Division refers to:

 

(i)The operations of SJAP in manufacturing and sales of organic fertilizer, bulk livestock feed, concentrated livestock feed, and the sale of live cattle inclusive of:

 

(a) Cattle that are not slaughtered in our own slaughterhouse operated by QZH are sold live to third party livestock wholesalers.

 

   In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
      2016Q3   2015Q3   2016Q3   2015Q3   2016Q3   2015Q3 
                            
SJAP   Sales of live cattle   7,119,057    16,360,557    5,937,538    15,261,704    1,181,519    1,098,853 
   Sales of feedstock                              
   Bulk Livestock feed   1,622,283    1,623,585    730,130    753,825    892,153    869,760 
   Concentrate livestock feed   4,471,123    2,710,543    2,480,922    1,569,175    1,990,201    1,141,368 
   Sales of fertilizer   841,942    589,937    561,443    383,232    280,499    206,704 
   SJAP Total   14,054,405    21,284,622    9,710,033    17,967,937    4,344,372    3,316,685 
                                  
   % of increase or (decrease)        -34%        -46%        31%

 

 - 4 - 

 

  

SJAP  Cattle Operation      2016Q3   2015Q3   Difference 
  Production and Sales of live cattle  Heads   3,230    5,136    -1,906 
   Average Unit sales price  US$/head   2,204    3,185    -981 
   Unit cost prices  US$/head   1,838    2,972    -1,133 
   Production and sales of feedstock                  
   Bulk Livestock feed  MT   9,013    8,939    74 
   Average Unit sales price  US$/MT   180    182    -2 
   Unit cost prices  US$/MT   81    84    -3 
   Concentrated livestock feed  MT   9,967    6,000    3,967 
   Average Unit sales price  US$/MT   449    452    -3 
   Unit cost prices  US$/MT   249    262    -13 
   Production and sales of fertilizer  MT   6,341    3,000    3,341 
   Average Unit sales price  US$/MT   133    197    -64 
   Unit cost prices  US$/MT   89    128    -39 

 

The average sales price of live cattle for the quarter is at RMB30/Kg (live weight) of 520 Kg / head average weight, reflecting an upward trend of cattle prices from Q1 2016’s low average of RMB20 / Kg. At the current price, SJAP is able to generate a profit from live cattle sales. Unfortunately, due to falling / poor cattle prices of recent past quarters, with the exception of Q2 2016, SJAP had to cancel a significant amount of Fattening contracts, thus reducing the inventory of the fattening cattle resulting in a much lesser number of cattle being sold during the quarter, and, as a result, will take some months before said inventory will be increased again, inasmuch as prices continue to remain or improve within the cattle industry.

 

All other divisions within SJAP were either steady or improving during Q3 2016, which is encouraging.

 

Overall sale revenues of SJAP’s operations decreased by $7.23 million (or 34%) from Q3 2015’s $21.28 million to Q3 2016’s $14.05 million and gross profit increased by $1.98 million (or 31%) from Q3 2015’s $3.32 million to Q3 2016’s $4.34 million, mainly affected by the drop in live cattle sales due to prices paid by the Company to local farmers as well as prices paid to the Company through the wholesale markets.

 

(b) Cattle that are sold to QZH and being slaughtered and deboned and packed by QZH; and the sales of meats deboned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and our own retail butcher stores. QZH is a wholly owned subsidiary of SJAP; as such, the financial statements of these three companies (SJAP, QZH and HSA) are consolidated into APWAM as one entity.

 

In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
   2016Q3   2015Q3   2016Q3   2015Q3   2016Q3   2015Q3 
QZH  * QZH's (Slaughter & Deboning operation)   330,754    438,911    143,320    215,417    187,434    223,494 
   ** QZH's (Deboning operation)                       -    - 
   (a) on cattle & Lamb locally supplied   4,460,323    3,396,515    3,406,372    2,625,413    1,053,951    771,102 
   (b) on imported beef and mutton   24,603,451    8,290,735    19,992,621    5,952,077    4,610,830    2,338,658 
   (C) Sales of live cattle   -    2,076,677    -    2,016,291    -    60,386 
   QZH Total   29,394,528    14,202,838    23,542,313    10,809,198    5,852,215    3,393,640 
                                  
   % of Increase or (decrease)        107%        118%        72%

 

 - 5 - 

 

  

* QZH (Slaughter & De-boning operation)      2016Q3   2015Q3   Difference 
Slaughter operation                  
Slaughter of cattle  Heads   850    1,200    -350 
Service fee  US$/Head   10    8    2 
Sales of associated products  Pieces   850    1,200    -350 
Average Unit sales price  US$/Piece   379    358    21 
Unit cost prices  US$/Piece   169    180    -11 
De-boning & Packaging activities                  
From Cattle supplied locally                  
De-boned Meats  MT   478    301    177 
Average Unit sales price  US$/MT   9,329    11,284    -1,955 
Unit cost prices  US$/MT   7,125    8,722    -1,598 
From imported beef  MT   2,707    996    1,711 
Average Unit sales price  US$/MT   9,089    8,324    765 
Unit cost prices  US$/MT   7,386    5,976    1,410 
From imported lamb  MT             - 
Average of sales price  US$/MT             - 
Average of cost prices  US$/MT             - 
Production and Sales of live cattle  Heads        867    -867 
Average Unit sales price  US$/head        2,395    -2,395 
Unit cost prices  US$/head        2,326    -2,326 

 

Average meat prices during the quarter were on the rise surpassing RMB62 / Kg that helped to improve QZH’s performances for the quarter, accordingly.

 

QHZ increased sales revenue by $8.53 million (or 107%) from Q3 2015’s $14.20 million to Q3 2016’s $29.39 million mainly due to the increase in imported beef jumping from Q3 2015’s $8.29 million to Q3 2016s $24.60 million representing an increase of $16.31 million (or 197%); a significant increase. In turn, gross profit increased by $2.45 million (or 72%).

 

(ii)The operations of HSA in manufacturing and sales of organic fertilizer.

  

In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
   2016Q3   2015Q3   2016Q3   2015Q3   2016Q3   2015Q3 
HSA  Sales of Organic fertilizer   908,272    924,563    701,757    704,047    206,515    220,516 
   Sales of Organic Mixed Fertilizer   4,339,940    3,946,710    2,361,635    2,251,100    1,978,305    1,695,610 
   HSA Total   5,248,212    4,871,273    3,063,392    2,955,147    2,184,820    1,916,126 
                                  
   % of increase or (decrease)        8%        4%        14%

 

 - 6 - 

 

  

HSA  Fertilizer and Cattle operation                - 
  Organic Fertilizer  MT   3,593    3,355    238 
   Average Unit sales price  US$/MT   245    264    -19 
   Unit cost prices  US$/MT   192    204    -13 
   Organic Mixed Fertilizer  MT   10,040    8,884    1,156 
   Average Unit sales price  US$/MT   432    444    -12 
   Unit cost prices  US$/MT   235    253    -18 
   Retailing packed fertilizer (For super market sales)  MT   37    51    -14 
   Average Unit sales price  US$/MT   725    738    -13 
   Unit cost prices  US$/MT   365    382    -16 

 

Overall sales of organic mixed fertilizer (“OMF”) increased to $4.34 million compared to Q3 2015’s $3.95 million resulting in an increase of $ 0.39 million (or 10%), reflecting a steady performance at HSA.

 

Overall gross profit has increased by $0.26 million (or 13.54%) from Q3 2015’s $1.92 million to Q3 2016’s $2.18 million mainly due to cost savings in raw materials.

 

lPlantation Division refers to the operations of Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd. (“JHST”). JHST is engaged in the HU Plantation business where dragon fruit flowers (dried and fresh), cash vegetable crops and immortal vegetables are sold to wholesale and retail markets. JHST’s financial statements are consolidated into the financial statements of MEIJI as one entity.

  

In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
   2016Q3   2015Q3   2016Q3   2015Q3   2016Q3   2015Q3 
                            
JHST  Sales of Fresh HU Flowers   475,340    530,511    196,555    209,343    278,785    321,168 
   Sales of Dried HU Flowers   5,173,014    6,476,837    2,122,825    2,107,165    3,050,189    4,369,672 
   Sales of Dried Immortal vegetables   -    307,508    -    103,687    -    203,821 
   Sales of Vegetable products   1,043,786    60,537    690,501    27,709    353,284    32,828 
   JHST/Plantation Total   6,692,140    7,375,393    3,009,881    2,447,904    3,682,258    4,927,489 
                                  
   % of increase or (decrease)        -9%        23%        -25%

  

JHST  Plantation of HU Flowers and Immortal vegetables           
  Fresh HU Flowers   Pieces   3,285,600    3,000,000    285,600 
   Average Unit sales price  US$/Pieces   0.14    0.18    -0.03 
   Unit cost prices  US$/Pieces   0.06    0.07    -0.01 
   Dried HU Flowers  MT   446    398    49 
   Average Unit sales price  US$/MT   11,599    16,294    -4,695 
   Unit cost prices  US$/MT   4,760    5,301    -541 
   Dried Immortal vegetables  MT   -    4      
   Average Unit sales price  US$/MT        87,859      
   Unit cost prices  US$/MT        29,625      
   Vegetable products  MT   1,381.00    25.26    1,356 
   Average Unit sales price  US$/MT   756    2,396    -1,640 
   Unit cost prices  US$/MT   500    1,097    -597 

 

Revenue from our plantation division decreased by $0.69 million (or 9%) from $7.38 million for Q3 2015 to $6.69 million for Q3 2016. The decrease was primarily due to lower prices both in fresh flowers by $0.03/piece and dried flowers by $4,695/MT primarily due from the poorer quality of flowers due to excessive rain and stormy weather during the harvest season.

 

 - 7 - 

 

  

There was a decrease in sales by 4MT (or 100%) in immortal vegetables also due to the season’s inclement weather.

 

JHST is experimenting with many different crops and other biological plant products aiming at the development of more stable crops and / or products that will eventually help the Company to develop the plantation into a large operation at economies of scale free from effects caused by the vagaries of weather in Guangdong Province. To date, some experiments are showing potential, and, as such, JHST is hopeful that solutions will be found in the near future.

 

lCattle Farm Division refers to the operations of Cattle Farm 1 under Jiangmen City Hang Mei Cattle Farm Development Co. Ltd (“JHMC”) where cattle are sold live to third party livestock wholesalers who are selling them mainly in Guangzhou and Beijing livestock wholesale markets. The financial statements of JHMC are consolidated into MEIJI as one entity along with MEIJI’s operation in the consulting and service for development of other cattle farms, such as Cattle Farm 2, or related projects.

 

In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
   2016Q3   2015Q3   2016Q3   2015Q3   2016Q3   2015Q3 
                            
MEIJI                                 
(CF1)  Sale of Live cattle (Aromatic)   9,658,454    9,636,919    9,119,428    8,996,149    539,026    640,770 
   MEIJI / Cattle farm Total   9,658,454    9,636,919    9,119,428    8,996,149    539,026    640,770 
                                  
   % of increase or (decrease)        0%        1%        -16%

 

MEIJI  Production and sale of Live cattle (Aromatic)  Heads   4,417    4,449    -32 
CF1  Average Unit sales price  US$/head   2187    2,166    21 
   Unit cost prices  US$/head   2065    2,022    43 

 

Cattle Farm 1 revenue increased sales by $21,535 (or 0.2%) from Q3 2015’s $9,636,919 to Q3 2016’s $9,658,454 while gross profit decreased by $101,744 (or 16%) from $640,770 in Q3 2015 to Q3 2016’s $539,026, reflecting negligible differences.

 

lCorporate & Others Division refers to the business operations of Capital Award Inc. / Sino Agro Food, Inc., including import/export business and consulting and service operations provided to projects not included in the above categories, and not limited to corporate affairs.

 

   In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
      2016Q3   2015Q3   2016Q3    2015Q3   2016Q3    2015Q3 
                            
SIAF  Sales of goods through trading/import/export activities                               
    on seafood    10,126,889    2,743,902    8,927,273    2,439,024    1,199,616    304,878 
    on imported beef and mutton    13,105,597    7,317,703    11,649,420    6,504,625    1,456,177    813,078 
    SIAF/ Others & Corporate total     23,232,486    10,061,605    20,576,693    8,943,649    2,655,793    1,117,956 
                                  
    % of increase and (decrease)         131%        130%        138%

 

 

SIAF  Seafood trading from imports                     
   Mixed seafoods  MT   542    132      410  
   Average of sales price  US$/MT   18,702    20,787      -2,086  
   Average of cost prices  US$/MT   16,486    18,477      -1,991  
   Beef & Lambs trading from imports  MT   1,239    955      284  
   Average of sales price  US$/MT   10,578    7,663      2,915  
   Average of cost prices  US$/MT   9,402    6,811      2,591  

 

 - 8 - 

 

  

Revenue from the corporate division increased by $13.17 million or (131%) from Q3 2015’s $10.06 million to Q3 2016’s $23.23 million. The increase was primarily due to the increase of seafood being imported from other newly developed sources from other countries.

 

The imported beef activity continued to increase this quarter by $5.8 million (or 79%) from Q3 2015’s $7.3 million to Q3 2016’s $13.1 million.

 

Gross profit from the corporate sector increased by $1.54 million or (138%) from $1.12 million for Q3 2015 to $2.66 million for Q3 2016. The increase was primarily due to the increase of sales described above.

 

In this respect, the Company is confident that this segment of activities will keep improving as the disposable income of China’s middle class continues rising.

 

 - 9 - 

 

 

Notes to Table A (1) Note (1.1, 2.1 and 3.1)

 

Table A.5 below shows the revenue, cost of services and gross profit generated from consulting, services, commission and management fee for three months ended September 30, 2016 (Q3 2016) and the three months ended September 30, 2015 (Q3 2015).

 

Revenues (consulting, service, commission and management fee):

 

Revenues decreased by $5.25 million (or 18%) from $28.63 million for Q3 2015 to $23.38 million for Q3 2016, cost of services for consulting, service, commission and management fees decreased by $4.70 million (or 27%) from $17.15 million for Q3 2014 to $12.45 million for Q3 2016, and gross profit increased by $0.55 million (or 5%) from $10.38million for Q3 2015 to $10.93 million for Q3 2016.

 

The decrease in revenue / cost of sales had been primarily due to the following reasons:

  

  l Since FF(1)’s modifications are incorporated into the process of consolidating fishery assets and properties into JFD / Tri-way, the work currently underway cannot be recorded as CA Work in Progress, but once the FF(1) sales transaction is completed, any gain derived from these modifications / improvements will be recognized by CA, at market value.

 

  l Since a portion of engineering work performed for PF(2) during Q3 2016 will be billed to Tri-way, CA has decided to forego billing until such time as an exact amount due from Tri-way can be determined; sometime in Q4 2016.

 

       2016Q3   2015Q3   Difference   Description of work  
Sales Revenues (Consulting and Services)                     
                         
   CA   23,377,355    28,633,558    -5,256,203   Working in progress of PF(2), NPF  
Group Total Revenues      23,377,355    28,633,558    -5,256,203       
Cost of sales                -       
   CA   12,450,460    17,151,938    -4,701,478       
Group Total Cost of sales      12,450,460    17,151,938    -4,701,478       
Gross Profit                -       
   CA   10,926,895    10,380,667    546,228       
Group Total Gross Profit      10,926,895    10,380,667    546,228       
                         
% of increase or (decrease)                        
Group revenues           -18%           
Group gross profits           5%           

 

lTable A.6 below highlights information of ongoing Consulting and Services provided by Capital Award, MEIJI and SIAF, respectively, as at September 30, 2016:

 

 - 10 - 

 

  

Table A 1 Other Income

 

Name of the
developments
  Location of
development
  Designed capacity per
year
  Land area or
Built up area
  Current Phase
& Stage
   Commencement
date of
development
  (Estimated)
development's
completion date on
or before
  Contractual
amount
  % of completion as of
30.09.2014
  Notes
Fish Farm (1)   Enping City   1,200 MT   9,900 m2   fully operational    July 2010   June 2011    $5.3 million   Fully operational    
Prawn Farm (1)   Enping City   2013=400MT 2014=800MT 2015=1200 MT   23,100 m2   2 phases and road work   2 phases and road work and Phase 3 extension of grow-out farm & Phase 4 demonstrated hydroponic farm    Phase 1 on June 2011 Phase (2.1) Phase (2.2) Road work Started Aug. 2012   Phase (1) on December 2012 Phase (2) completed Q1 2013    Phase (1) $11.6 million Phase (2) 6.39 million Road work $2.94 million, Phase 3 US$5.2 million & Phase 4 US$1.6 million   Extension work 90% completed with development of the demonstration hydroponic farm outstanding and scheduling to start work within December 2015.
Fish Farm (2) "The Fish & Eel Farm   Xin Hui District, Jiang Men.   2014=800 MT 2015= 1600 MT 2016=2000MT   165,000 m2   3 Phases   Phase 1 January 15, 2012 Bridge & Road Oct. 2012 Phase (3) 2013 & (4)2014   Phase 1 June 2014 Bridge & Road Dec. 2013 Phase (3) & (4) 2015    Phase (1) $8.73 million Bridge & Road $2.48 Phase (3) $4.38 M Phase (4) $10.63 Million   Phase (1) & Bridge and Road completed Jan. 2013 Phase (3) completed and Phase (4) not started.   Phase's 4 work is to develop more RAS open dams which progress is pending on the performance of the newly developed RAS open dams using our latest generation of APM technology that are being developed in PF(2)that will show results during Q4 2015.
Prawn Farm (2) The Hatchery & Nusery & Grow-out prawn farm   San Jiao Town, Zhong San City,   2013=1.6 Billion Fingerling and 400MT of prawns increasing yearly and by 2015 = 3.2 billion fingerling and 1200 MT of Prawns   120,000 m2   2 phases    Phase (1) and Phase (2) May 2012 Phase (3) 2014   Phase (1) Dec. 2012 and Phase (2) December 2013.Phase (3) Dec. 2014    Phase (1) $9.26 m  and Phase (2) 8.42 Million Phase (3) 11.5 Million   Phase (1) fully operational and Phase (2) in operation and Phase (3) started and Phase 4 work is not started.   Phase 3 is to develop new RAS open dams using our latest generation of our APM technology on a 20,000 m2 block of land scheduling to be completed and in operation within Q4 2015.
Cattle Farm (1)   LiangXi Town, Enping City   165,013 m2   1,500 Heads   2 phases    April 2011   December 2011   $3.0 million +$1.17 Million   Fully Operational    
Cattle Fram (2)   LiangXi Town, Enping City   230,300 m2   2,500 heads   2 Phases   February 2012   March. 2014   $10.6 million   Operational    
Cattle Farm (1) external road work   LiangXi Town, Enping City   4.5 Km road       One Phase   September 2012   March. 2013   $4.32 million   Completed    
Cattle Farm (2) External Road work.   LiangXi Town, Enping City   5.5 Km Road       One Phase   September 2012   March. 2013    $5.28 Million   Completed    
                                     
WHX Restaurants etc.   Guangzhou City   5,500 seatings in total       Phase (1) Stage (1)   June 2012   December 2015   $17.5 million   Restaurant 7 is now in operation    
                                     
NaWei wholesale Center   Guangzhou City       5,000 m2   One Phase   July 2012   March. 2014   $ 9 million   operational   Alternation and renovation work to improve its working environment is in progress.
    Shanghai City       3,000 m2   Two Phases   Sept. 2014   December. 2014   $5 million   Operational   Minor improvement works are in progress.
New Zhangshan Prawn Project   Zhongshan City   Phase (1)S(1)= 10,000 MT S(2)= 30,000 MT Phase (2) S(1)=100,000 MT Phase (3) 200,000 MT   3600 MU land & BU area 3.57 million square meter   Phase (1) Stage (1)   Nov. 2013   10 years for 100,000 MT capacity & 20 years for whole integrated project   10 years for US$2.6 billion   Installation and finishing works are being carried out on Stage 1 Phase 1 that with a designed capacity of 6,000 MT / year.   Basic infrstractural work on Stage 2 Phase 1 is in progress and upon completion total designed capacity is for 10,000 MT / year collectively from Stage 1 & 2 of Phase 1.

 

 - 11 - 

 

 

Table (Note 4.1) below shows the issuance of shares for Q3 2016

  

lThe Company has secured a loan commitment from a group of third party lenders in the amount of $8,225,370 for purposes of providing intercompany lending to Tri-way Industries Limited (Tri-way) for short-term working capital.

 

lThe first intercompany loan agreement between The Company and Tri-way was entered on July 5, 2016 for $6,000,000 disbursed on and between July 15 and August 6, 2016. The remaining $2,225,370 portion of the secured funding will be disbursed to Tri-way under a separate loan agreement sometime on or before December 31, 2016.

 

lThe terms of the intercompany loan between the Company and Tri-way are as follows:

  

(i) Initial Maturity Date: December 31, 2017
(ii) Deferred Maturity Date: December 31, 2018
(iii) Interest Rate: 3.15% conventional interest payable per annum
(iv) Default Interest Rate: 10.0%
(v) Prepayment Penalty: None
(vi) Conversion Option: Any or all the combined principal and interest
(vii) Conversion Price: 80% of 20-day price average at maturity date or after

 

Summarized Table illustrating issuance of shares Q3 2016:

  

Date   Shares
issued/Bought
back
     Market Price
when issuance
    Par value    Additional
paid in capital
    Consideration
received
   Note
As of July 1, 2016   21,465,322                        
7/25/2016   300,000    5.25    300    1,573,389    1,573,689    591,537 shares were issued as security to secure loan debts amounting to $2,815,020. from third parties
7/27/2016   291,537    4.26    292    1,241,040    1,241,331    
8/5/2016   300,000    5.10    300    1,529,269    1,529,569    600,000 shares were issued as security to secure loan debt $2,949,187 from third parties
8/6/2016   300,000    4.73    300    1,419,318    1,419,618    
9/12/2016   -1,000,000    4.85    -1,000    -4,849,000    -4,850,000  
9/12/2016   -200,000    4.85    -200    -969,800    -970,000  

Shares assigned for cancellation

As of Sept.30, 2016   21,456,859                        

 

The Gain/Loss on extinguishment of debts historical previously stated:

 

During the last three years, we have issued unregistered securities to Chinese persons none of them residents of the United States. None of these transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The sales of these securities were, except as set forth below, deemed to be exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(a)(2) thereof, and/or Rule 506 of Regulation D promulgated there under, as transactions by an issuer not involving a public offering. The recipients of securities in each transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the certificates issued in such transactions. All purchasers of our securities were accredited or sophisticated persons and had adequate access, through employment, business or other relationships, to information about us.

 

 - 12 - 

 

  

We relied upon Regulation S of the Securities Act of 1933, as amended, for the above issuances, none of which was made to US citizens or residents. We believe that Regulation S was available because:

 

  None of these issuances involved underwriters, underwriting discounts or commissions;

 

  We placed Regulation S required restrictive legends on all certificates issued;

 

  No offers or sales of stock under the Regulation S offering were made to persons in the United States; and

 

 

No direct selling efforts of the Regulation S offering were made in the United States.

 

The other income for the three months ended September 30, 2016 amounted to $296,670, and derived from the combination of (1) Gain on extinguishment of debt $0 (Note 4), (2) Government Grant $1,305,147 and (3) other income $0 less interest expenses of $1,012,477. The other income for the three months ended September 30, 2015 amounted to $(581,687), and derived from the combination of (1) gain on extinguishment of debt $0 (Note 4), (2) Government grant of $746,929, and (3) other income 0 less interest expenses of $1,328,616.

 

Gain (loss) of extinguishment of debts

 

Any deficit (excess) of the fair value of the shares over the carrying cost of the debt has been reported as a gain (loss) on the extinguishment of debt of $ 0 and $0 has been credited (charged) to operations for the three months ended September 30, 2016 and 2015, respectively.

 

lNote (5) to Table A 1 General and Administrative Expenses and Interest Expenses

 

General and administrative and interest expenses (including depreciation and amortization) increased by $743,160 or 14%, from $5,280,538 for Q3 2015 to $6,023,698 for Q3 2016. The increase was primarily due to increase in wages and salaries of $1,729,917 from $495,734 for Q3 2015 to $2,225,651 for Q3 2016, and out of which $662,664 was the monthly billed amount from the total of $7,951,967 paid in shares to and/or owed to the personnel and directors for services rendered over the past 9 years from 2007 to 2015 and the additional payments made to consultants associated with the corporate exercises (ie. Carve-out and IPO exercises of Tri-way and SJAP). There was a decrease in interest expense of $316,139 from $1,328,616 for Q3 2015 to $1,012,477 for Q3 2016.

 

Table (to Note 5)

 

Category  2016 Q3   2015 Q3   Difference 
       $   $ 
Office and corporate expenses   1,481,203    2,297,651    (816,448)
Wages and salaries   2,225,651    495,734    1,729,917 
Traveling and related lodging   17,233    16,998    235 
Motor vehicles expenses and local transportation   49,155    43,966    5,189 
Entertainments and meals   72,015    24,813    47,202 
Others and miscellaneous   313,537    415,625    (102,088)
Depreciation and amortization   852,427    657,135    195,292 
Sub-total   5,011,221    3,951,922    1,059,299 
Interest expenses   1,012,477    1,328,616    (316,139)
              - 
Total   6,023,698    5,280,538    743,160 

 

Note (6) to Table A 1 Depreciation and Amortization

 

Depreciation and amortization increased by $692,988 or 72% to $1,649,561 for Q3 2016 from $956,573 for Q3 2015. The increase was primarily due to the increase of depreciation by $604,725 to $1,142,872 for Q3 2016 from depreciation of $538,147 for Q3 2015, whereas the increase of amortization by $88,263 to $506,689 for Q3 2016 from amortization of $418,426 for Q3 2015.

  

 - 13 - 

 

 

In this respect, total depreciation and amortization amounted to $1,649,561 for Q3 2016, out of which amount $852,427 was reported under general and administration expenses and $797,134 was reported under cost of goods sold; whereas, total depreciation and amortization was at $956,573 for Q3 2015 and out of which amount $657,135 was reported under General and Administration expenses and $299,438 was reported under cost of goods sold.

 

Note (7) to Table A 1 Non-controlling interests

 

Table (F) below shows the derivation of non-controlling interest

 

The Net Income attributed to non-controlling interest is $7,343,891 shared by (JHST, JHMC, HSA, SJAP, QZH and JFD collectively) for Q3 2016 as shown in Table (F) above.

 

 

Names of intermediate holding co.
subsidiaries
  Capital
Award
Inc.
(Belize)
  Macau EIJI Company Ltd. (Macau)   A Power Agro
Agriculture
Development (Macau)
Ltd.
       Triway
Industries
Ltd.(HK)
   Total  
Abbreviated names  CA  (MEIJI)   (APWAM)       (TRW)    
                                        
% of equity holding on below subsidiaries (in China)  n.a.   75%   75%   26%   45%        75%   
Name of China subsidiaries  None   Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd.(China)    Jiangmen City Hang Mei Cattle Farm Development Co. Ltd.(China)         Quinghai Sangjiang A Power Agrivulture Co. Ltd. (China)    Qing Hai Zhonghe Meat product Co.Ltd (China)    Jiangmen City A Power Fishery Development Co. Ltd. (China)    
Abbreviated names      (JHST)    (JHMC)    (HSA)    (SJAP)    (QZH)    (JFD)       
                 Hunan Shenghua A Power Agriculture Co. Ltd (China    50%                
                                        
Net income of the P.R.C. subsidiaries for the period ended 30. Sept. 2016 in $     $3,305,983   $801,158   $1,372,764   $4,353,539   $6,292,261   $529,810       
                                        
Equity % of non-controlling interest      25%   25%   24%   55%   55%   25%      
                                        
Non-controlling interest's shares of Net incomes in $     $826,496   $200,290   $329,463   $2,394,446   $3,460,743   $132,453   $ 7,343,891  

 

Note (8) to Table A 1 Earnings per share (EPS)

 

Earnings per share decreased by $0.10 (basic) and $0.19 (diluted) per share from EPS of $1.14 (basic) and$1.14 (diluted) for Q3 2015 to EPS of $1.04 (basic) and $0.95 (diluted) for Q3 2016.

 

 - 14 - 

 

  

Part B: Unaudited Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (audited)

 

Consolidated Balance sheets   September,
30,2016
    December 31,
2015
    Changes +-     Note
    $     $     $      
ASSETS                              
Current assets                              
Cash and cash equivalents     9,052,566       7,229,197       1,823,369       B
Inventories     65,055,856       62,848,707       2,207,149       9
Costs and estimated earnings in excess of billings on uncompleted contracts     1,557,713       1,306,885       250,828        
Deposits and prepaid expenses     95,334,913       83,811,929       11,522,984       10
Accounts receivable     135,759,072       135,674,418       84,654       11
Other receivables     74,123,074       59,780,587       14,342,487        
Total current assets     380,883,194       350,651,723       30,231,471        
Property and equipment                              
Property and equipment, net of accumulated depreciation     110,365,397       95,238,410       (15,126,987 )      12
Non-current assets held for sale     0       9,020,669       (9,020,669 )      
Construction in progress     115,771,608       72,788,769       42,982,839       13
Land use rights, net of accumulated amortization     55,868,376       58,485,675       (2,617,299 )     14
Total property and equipment     282,005,381       235,533,523       46,471,858        
Other assets                              
Goodwill     724,940       724,940       -        
Investment in unconsolidated equity investee     149,745       -       149,745        
Long term investment     748,727       769,941       (21,214 )      
Proprietary technologies, net of accumulated amortization     10,293,472       10,784,358       (490,886 )     15
Temporary deposit paid to entities for investments in future Sino Joint Venture companies     41,109,708       41,109,708       -        
Total other assets     53,026,952       53,388,947       (361,995 )      
Total assets     715,915,167       639,574,193       76,340,974        
Current liabilities                             16
Accounts payable and accrued expenses     15,095,032       9,345,559       5,749,473        
Billings in excess of costs and estimated earnings on uncompleted contracts     1,647,280       8,700,706       (7,053,426 )      
Due to a director     566,283       211,247       355,036        
Other payables     6,159,238       4,792,579       1.366,659        
Borrowings-Short term bank loan     7,357,739       4,466,040       2,891,699        
Negotiable promissory notes     885,997       865,968       20,029        
Total current liabilities     31,711,569       28,382,099       3,329,470        
Non-current liabilities                              
Other payables     19,422,652       4,797,332       14,625,320        
Long term debts     728,514       1,554,902       (826,388 )      
Convertible note payable     23,496,718       34,904,739       (11,408,021 )     16D
Total non-current liabilities     43,647,884       41,256,973       2,390,911        
Stockholders’ equity                              
Common stock     21,457       20,134       1,323        
Additional paid-in capital     150,788,947       142,882,173       7,906,774        
Retained earnings     388,312,091       339,616,638       48,695,453        
Accumulated other comprehensive income     (2,584,868 )     1,427,638       (4,012,506 )      
Treasury stock     (1,250,000 )     (1,250,000 )     -        
Total SIAF Inc. and subsidiaries' equity     535,287,627       482,696,583       52,591,044        
Non-controlling interest     105,268,087       87,238,538       18,029,549        
Total stockholders' equity     640,555,714       569,935,121       70,620,593        
Total liabilities and stockholders' equity     715,915,167       639,574,193       76,340,974        

 

 - 15 - 

 

 

Note B Cash and Cash Equivalents

 

The change in cash and cash equivalents of $1,823,369 derived from cash and cash equivalents of $9,052,566 and $7,229,197 as of September 30, 2016 and December 31, 2015, respectively. In this respect, during this time of the fiscal year, cash and cash equivalents typically return to stable levels following end of the year volatility due to various transactions that usually occur during that time of year.

 

Note (9) Break down on inventories

 

   Sept. 30. 2016 
   $ 
Sleepy cods, prawns, eels and marble goble   6,440,964 
Bread grass   2,812,207 
Beef cattle   5,196,769 
Organic fertilizer   14,914,208 
Forage for cattle and consumable   10,069,223 
Raw materials for bread grass and organic fertilizer   13,237,259 
Beef and mutton   11,072,408 
Immature seeds   1,312,818 
      
    65,055,856 

 

Note (10) Breakdown of Deposits and Prepaid Expenses

 

Note (10.1)

 

   Sept. 30. 2016   Note 
   $     
Deposits for          
- purchases of equipment   6,975,629      
- acquisition of land use rights   3,373,110    10.1 
- inventories purchases   21,117,003      
- aquaculture contracts   2,261,538      
- consulting service providers and others   8,632,259      
- construction in progress   21,504,658      
- Collaterals of shares   11,281,100      
Prepayments - debts discounts and others   14,216,699      
Shares issued for employee compensation and overseas professional and bond interest   5,972,917    10.2 
           
    95,334,913      

 

Note (10.1) Breakdown of Deposit for- acquisition of Land Use Right:

 

As of September 30, 2016, we have $3,373,110 for a deposit paid for the acquisition of a Land Use Right derived from the following transactions:

 

$3,182,180 (or RMB20,000,000) was full payment made on June 6, 2012 for Land Use Right by HSA comprising a block of land measuring 150 Mu (or 25 acres of prime agriculture land) located at Linli District of Hunan Province within 10 Km of HSA’s complex. The process of application to register the said “Land Use Right,” sometimes referred to as a LUR, is in progress, and, as such, this payment is recorded as Deposit and Prepaid Expenses pending final authority estimated to be granted on or before September 30, 2015, as the new local ordinances on agriculture land delayed the processing of our application. Due to the delay in approving the LUR of the said block of land, HSA has revised and supplemented the contract of this land by a lease agreement until such time, the said official approval will be granted, and in the interim, the deposit and prepayment on said land is being treated as a rent-to-own lease arrangement providing pre-payment toward said land once approval is granted.

 

 - 16 - 

 

 

$190,930 (or RMB1, 200,000) was paid by SJAP as deposit for the acquisition of “Land Use Right” on a block of land measuring 15 Mu (or 2.475 acres) located at Huangyuan district next to SJAP’s complex on October 15, 2012. The process of rezoning this piece of land to residential (at present, agriculture) continues, and once completed will be transferred from the Local Government (Huangyuan County) to SJAP to build new staff quarters.

 

Note (10.2) Information of “Temporary deposit and pre-payments for investments in future assets and in future Sino Foreign Joint Venture companies”:

 

        Deposit &
prepayments
    
Project name  Estimated total
Asset value
  Estimated time
of Acquisition
  Current status
of Project
  made as of Sept.
30, 2015
   Land Bank
or Built Up area
  % equivalent
to equity paid
   $        $   m2   
Trade Center  3.5 million  own development  30% completed   4,086,941       5,000  31%
                     
Seafood Center            1,032,914       
                     
Fish Farm (1)  26.22 Million  2016  2 out 4 phases completed   6,000,000       23,100  23%
Prawn Farm (1)  20.93 Million  2014  in operation   14,554,578      165,000  56%
Prawn Farm (2)  29.18 Million  2014  Part operational Part work in progress   9,877,218    120,000 developed 96,000 m2 undeveloped  29%
                     
Cattle Farm (2)  15.88 Million  2014  95% completed   5,558,057      230,300  35%
             41,109,708       

 

During this quarter the Company hasn’t paid further deposit and prepayment for investments in future assets and in future Sino Foreign Joint Venture companies. Therefore, there are no changes to report for the quarter.

 

 - 17 - 

 

   

Note (11): Breakdown of Accounts receivable:

 

      September 30,2016 
                  over 120 days and 
      Accounts receivable   0-30 days   31-90 days   91-120 days   less than 1 year 
      $   $   $   $   $ 
Consulting and Service totaling  CA   32,859,525    14,703,514    -    15,612,139    2,543,872 
Sales of Live Fish, eels and prawns (from Farms) (CA)      20,824,444    10,602,177    -    7,461,344    2,760,923 
Sales of imported seafood (SIAF)      16,922,273    13,739,740    3,182,533    -    - 
Sales of Cattle and Beef Meats (from Enping Farm) (MEIJI)      1,596,008    1,596,008    -    -    - 
Sales of HU Flowers (Fresh & Dried) (JHST)      7,703,484    464,678    6,214,434    1,024,372    - 
Sales Fertilizer, Bulk Stock feed and Cattle by (SJAP)      16,554,024    3,207,642    4,982,570    3,842,890    4,520,922 
Sales Fertilizer from (HSA)      8,144,422    1,748,891    3,482,873    1,693,481    1,219,177 
Sales of Beef (QZH)      31,154,892    12,303,894    15,724,410    15,887    3,110,701 
Total      135,759,072    58,366,544    33,586,820    29,650,113    14,155,595 

 

Information on trading terms and provision for diminution in value of accounts receivable:

 

Our accounts receivable aging is less than 12 months old. Receivables from revenue derived from consulting and services billed for work completed are within our normal trading terms of 180 days and therefore no diminution in value is required, as the credit quality of the receivables is not in doubt. SIAF’s receivables in consulting and services are mainly provided to WHX, WC1 and Shanghai wholesale centers collectively, and the extended credit terms for this quarter for more than 120 days to WHX and WC1 is primarily to allow them more time to accommodate their development of import sales in beef that requires much more working capital; this also applies to the higher credit terms on CA’s sales of fish to WC1 and Shanghai WC.

 

Fish Sales: Most farmed fish are sold to wholesalers at prevailing daily market prices and ageing is within 90 days trading terms with a small portion at 180 days (for oversized fish, as the sale of oversized fish takes time to sell). We sold $28.6 million in live fish, eels and prawns (live seafood) to the wholesalers for the three months ended September 30, 2016, accounts receivable of $5.0 million were over 120 days. These debtors represent credit quality receivables as they are well established wholesalers, profitable and viable businesses with a good track record and therefore provision of diminution in value is not required as collection is not in doubt.

 

Sales of fertilizer and bulk livestock feed: These comprise sales made to regional farmers contracted by us to grow crops and pastures using and purchasing our fertilizer. We in turn agree to buy their cattle that are fed with our bulk and concentrated cattle feed purchased from us. Under this arrangement, our accounts receivable are normally carried forward until such time they can be offset against our account payables due to these contracted farmers (that is, the amount owed for the amount of crops and pastures is ultimately offset against the amount of cattle that we have purchased from them, respectively). As these debtors are our contract farmers and operate a profitable and viable business with us and have a good track record we consider their credit quality is good and collection from them is not in doubt, thus no diminution in value is required.

 

 - 18 - 

 

  

Information on concentration of credit risk of account receivables:

 

We have 4 major long-term customers (referring to Customer A, B, C and D mentioned in the Financial Statement of this report under Note), who have accounted for 55.04% of our consolidated revenues for Q3 2016 as shown in the table below:

 

   Three months ended Sept. 30, 2016 
   % of total Revenue   Amount in $   Customer's Total Revenue 
Customer A   19.82%       24,603,451 
Customer B   16.59%        20,588,019 
Customer C   11.95%        14,831,468 
Customer D   6.68%        8,285,979 
                
    55.04%        68,308,917 

 

Customer A is Shanghai Virgo Trading Co. Ltd. (Virgo) who sells much of the imported beef and seafood as well as locally produced seafood. During Q32016, the Company sold $24,603,451 of goods to Virgo representing 19.82% of our total sales of goods revenue of $124,118,458.

 

Customer B is one of our main agents, namely Mr. Xian Zhiming (i.e. Zhongshan new prawn farm), with whom we agreed to extend trading terms between 120 days to 180 days and/or until such time as Customer B is able to source working capital financing, on or before 31.12.2016.

 

Customer C is Cattle Wholesale represented by Mr. Wang Jian Wah, a wholesale market wholesaler who buys & distributes our live prawns and mixed fish to his group of wholesalers at the Guangzhou and Shanghai wholesale markets. During Q3 2016, transactions through Mr. Wang generated 11.95 % of our total consolidated revenue (equivalent to $14,831,468 out of our total revenue of $124,118,458).

 

Customer D is Wholesale Center (1) or WSC1 represented by Mr. Zhou Jian Fai to whom we sell much of imported beef and seafood and our farmed live seafood. During Q3 2016, WSC1 generated revenue (equivalent to $8,285,979 out of our total revenue of $124,118,458) or 6.68% of our total consolidated revenue.

 

The Company had 4 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable during Q3 2016:

 

   Sept. 30, 2016     
   % of total Accounts receivables   amount in $   Accounts receivables 
Customer A   22.33%       30,315,653 
Customer B   17.68%        24,001,497 
Customer C   10.12%        13,739,740 
Customer D   6.86%        9,316,278 
    56.99%        77,373,168 

 

Note (12) Property and equipment, net of accumulation depreciation

 

   Sept. 30. 2016 
   $ 
Plant and machinery   5,993,854 
Structure and lease hold improvements   90,756,543 
Mature seeds and herbage cultivation   23,249,165 
Furniture and equipment   707,356 
Motor vehicles   926,511 
    121,633,429 
      
Less: Accumulated depreciation   (11,268,032)
Net carrying amount   110,365,397 

 

 - 19 - 

 

 

Note (13) Construction in progress

 

   Sept. 30. 2016 
   $ 
     
Construction in progress     
- Oven room, road for production of dried flowers   3,743,636 
- Office, warehouse and organic fertilizer plant in HSA   35,172,563 
- Organic fertilizer and bread grass production plant and office building   21,536,554 
- Rangeland for beef cattle and office building   37,541,265 
- Fish pond   17,777,590 
      
    115,771,608 

  

 - 20 - 

 

  

Note (14) Land Use Rights, net of accumulated amortization:

 

Item  Owner  Location  Acres   Date
Acquired
  Tenure   Expiry dates  Cost  $   Monthly
amortization
 $
   2016.09.30
Balance  $
   Nature of
ownership
Hunan   lot1  HS.A  Ouchi Village, Fenghuo Town, Linli County   31.92   4/5/2011   43   4/4/2054   242,703    470    211,659   Lease
Hunan   lot2  HS.A  Ouchi Village, Fenghuo Town, Linli County   247.05   7/1/2011   60   6/30/2071   36,666,141    50,925    33,457,854   Management Right
Hunan  lot3  HS.A  Ouchi Village, Fenghuo Town, Linli County   8.24   5/24/2011   40   5/23/2051   378,489    789    327,235   Land Use Rights
Guangdong  lot 1  JHST  Yane Village, Liangxi Town, Enping City   8.23   8/10/2007   60   8/9/2067   1,064,501    1,478    901,869   Management Right
Guangdong  lot 2  JHST  Nandu Village of Yane Village, Liangxi Town, Enping City   27.78   3/14/2007   60   3/13/2067   1,037,273    1,441    871,598   Management Right
Guangdong  lot 3  JHST  Nandu Village of Yane Village, Liangxi Town, Enping City   60.72   3/14/2007   60   3/13/2067   2,267,363    3,149    1,905,215   Management Right
Guangdong  lot 4  JHST  Nandu Village of Yane Village, Liangxi Town, Enping City   54.68   9/12/2007   60   9/11/2067   2,041,949    2,836    1,732,821   Management Right
Guangdong  lot 5  JHST  Jishilu Village of Dawan Village,Juntang Town, Enping City   28.82   9/12/2007   60   9/11/2067   960,416    1,334    815,020   Management Right
Guangdong  lot 6  JHST  Liankai Village of Niujiang Town, Enping City   31.84   1/1/2008   60   12/31/2068   821,445    1,141    701,651   Management Right
Guangdong  lot 7  JHST  Nandu Village of Yane Village, Liangxi Town, Enping City   41.18   1/1/2011   26   12/31/2037   5,716,764    18,323    4,452,480   Management Right
Guangdong  lot 8  JHST  Shangchong Village of Yane Village, Liangxi Town, Enping City   11.28   1/1/2011   26   12/31/2037   1,566,393    5,020    1,219,979   Management Right
Guangdong  lot 9  MEIJI  Xiaoban Village of Yane Village, Liangxi Town, Enping City   41.18   4/1/2011   20   3/31/2031   5,082,136    21,176    3,684,549   Management Right
Qinghai  lot 1  SJAP  No. 498, Bei Da Road, Chengguan Town of Huangyuan County,Xining City, Qinghai Province   21.09   11/1/2011   40   10/30/2051   527,234    1,098    462,428   Land Use Right & Building ownership
Guangdong lot 10  JHST  Niu Jiang Town, Liangxi Town, Enping City   6.27   3/4/2013   10   3/3/2023   489,904    4,083    314,355   Management Right
Guangdong lot 11  CA  Da San Dui Wei ,You Nan Village, Conghua District of Guangzhou City   33.28   10/28/2014   30   10/27/2044   4,453,665    12,371    4,156,754   Management  Right
   JHST  Land improvement cost incurred       12/1/2013           3,914,275    6,155    3,705,021    
Exchange difference                         -2,833,191         -3,052,112    
                                         
          654               64,397,460    131,789    55,868,376    

 

 - 21 - 

 

 

Note (15) Other Receivables

 

   Sept. 30.2015   Note
   $    
Advanced to employees   452,154   15.A
Advanced to suppliers   13,342,763   15.B
Advanced to customers   32,328,157    
Advanced to sub-contractors   28,000,000    
Advanced to convertible bond holder   -    
         
    74,123,074    

 

Note 15 A & B: Breakdown of Advances to Suppliers at SJAP’s operations:

 

At SJAP it is a common practice to make cash advances to our cooperative growers (presently standing at 22 cooperatives with over 2,000 members) who are our suppliers, to carry them through respective growing periods (for cropping, pasturing or cattle growing purposes) before final harvests of produce or sale of their cattle. On average, it works out to less than $6,672 per member that in the management’s opinion is a normal season to season process deemed fair and equitable. In this respect, as the average increases it means that the typical cooperative farmer is increasing his productivity (whether in the growth of crops or cattle), and in simple terms, it represents good progress indicating that SJAP’s revenue is also increasing.

 

Note (16) Current Liabilities:

 

   Sept. 30, 2016   Note
Current liabilities        
Accounts payable and accruals   15,095,032   16.A
Billings in excess of cost and estimated earnings on uncompleted contracts   1,647,280    
Due to a director   566,283   16 B
Other payables   6,159,238    
Borrowings-Short term bank loan   7,357,739   16.C
Negotiable promissory notes   885,997    
    31,711,569    

 

Note 16A: Accounts payables and accrued expenses clarification:

 

Our current trading environment is limited to a number of suppliers who offer prolonged credit terms, which means that most purchases are paid for in cash or short credit terms (7 to 10 days); this grants us better bargaining ability to obtain cash discounts resulting in the low trade account payables balance of $15.10 million, about 12% of total sales of $124 million for the reasons stated below:

 

Our main Account Payables during Q3 2016 were generated from the following activities:

 

1.We supply the following cost elements: our own staff, engineering and technology that enhanced our profit margins and reduced the overall cost of sales.

 

2.Implementation, supervision, training and associated management work and most of the building sub-contractors worked at fixed costs; consequently, profit margins are contained providing ample opportunity for expanded credit terms. For contracts related to the construction of farms we use plants, equipment, parts and components that were specially manufactured and made as per our own design and engineering by local manufacturers and suppliers (who in the past carried a high amount of initial development costs and inventories for us based on the understanding that we would pay for the deliveries of goods sold within shorter trading terms such that they could afford to carry such costs). However, in ZSNPP said development cost and cost of inventories are much too high for said manufacturers and suppliers to carry, such that we made various advances to said manufacturers and suppliers during year 2016 especially so in Q3 2016 to ensure there are no disruptions in supply of plants and equivalent and related parts and components needed to complete the construction and installation of the APM farms in said project to ensure there are no disruption of supply of plants and equivalent and related parts and components needed to complete the construction and installation of the APM farms in said project. 

 

 - 22 - 

 

 

3.Cost of sales of live seafood had averaged 88% for Q3 2016, (the bulk of the cost came from the supplies of baby fingerlings and the live-bait as the main fish feed), and customary trading terms of Chinese suppliers is on a cash on delivery basis, and suppliers who provide short credit terms, however, in 2016 our main supply of these items come from PF2 such that we are now enjoying much better credit terms in comparison to other years.

 

4.Cattle sales at SJAP’s own cattle stations and from its cooperative farmers started in 2011 at lower profit margins compared to the fishery sector sales, with the cost of sales averaging 93% for Q3 2016. It is also customary in China to pay for the young live cattle by cash on delivery. The Enping cattle farm started to buy young cattle in 2011 and started sales of mature cattle in 2012; cost of sales is averaged at 94% for Q3 2016. Most of the young cattle supplies were from small primary producers (local small farmers) who did not have significant financial resources; as such, we paid for these supplies of young cattle in cash on delivery or under short credit terms after delivery.

 

5.At SJAP, the bulk of our fertilizers were sold to farmers who are growing pasture grass and crops for us such that their fertilizer sales were kept as book entries that would be offset with the pasture grass and crops that we would buy back from them. In the case of HSA, which is a developing stage company in fertilizer manufacturing, prolonged credit term facilities have not been established for its purchase of raw materials.

 

6.Bulk livestock feed are produced by regional cooperative growers under contract to us and they use our supply of fertilizer and seeds that represented the main cost components enhancing cost of sales, which averaged 45% for Q3 2016. Again, sale of fertilizer is held on credit against crops and pasture grass purchased from them, as well as bulk livestock feed sold to them for cattle rearing, and reconciled once cattle are purchased from them.

 

Note (16 B): Series F Non-convertible preferred stock

 

On August 22, 2012, the Company’s Board of Directors declared that the Company’s stockholders were entitled to receive one share of restricted Series F Non-convertible Preferred Stock for every 100 shares of Common Stock owned by the stockholders as of September 28, 2012, with lesser or greater amounts being rounded up to the nearest 100 shares of Common Stock for purpose of the computing the dividend. The holders of record of shares of Series F Non - Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2015. During Q1 2013, our transfer agent recorded 924,180 shares of Series F Non-Convertible preferred stock on the account. However, the Company did not issue physical shares and only issued coupons to notify respective shareholders on that date. These 924,180 F shares were based on the 91,931,287 shares of Common Stock outstanding as of September 28, 2012, calculated at one share of Series F Non-Convertible preferred stock for every 100 shares of Common Stock with decimal number of shares being rounded up to one. All F shares have been cancelled as of September 30, 2016 and all requisite payments have been made to the former holders of such shares.

 

Note (16C): Analysis of Other Payables:

 

As of September 30 2016, other payables totaling $25,581,890 was composed of the following:

 

During Q3 2016, referring to the inter-company company loan to Tri-way, the Company issued promissory notes amounting to $8,225,370 to unrelated third parties for advances granted by third parties collectively to the Company (and/or to its subsidiaries) that are personally guaranteed by a director, repayable within two (2) years under interest free terms, and the outstanding balance forward of $4,797,332 in previous quarters, leaving a balance of $ 13,052,702 of debts loans outstanding as of September 30, 2016.

 

Debts could be repaid either by cash or in shares of the Company or a combination, thereof. If shares are elected to settle debt amounts, the respective share conversion rates will be determined by both parties at the time of settlement. During Q3 2016 $4,169,950 of promissory notes for advances granted by third parties and the outstanding balance forward of $2,200,000 in previous quarters, and leaving a balance of $ 6,639,950 of promissory notes outstanding as of September 30, 2016.

 

A grant of $741,240 was received from the Chinese government by SJAP for the development of a certain project; however if SJAP will not be able to complete the project, it will have to repay the grant to the Government. As of September 30 2016, as work is in progress on the said project is not yet completed, the grant is recorded as other payables.

 

During the nine months ended September 30, 2016, other advances provided through verbal agreements with other unrelated third parties, collectively, to our subsidiaries with no fixed term of repayment, interest free, amount to $5,417,998 unpaid and outstanding as of September 30, 2016.

 

 - 23 - 

 

 

Note (16 D): Convertible Note

 

On August 29, 2015 the Company executed a Convertible Note with Euro China AB (“ECAB”) Stockholm Sweden, whereby ECAB would lend to the Company US$25,000,000 Million based on following principal terms and conditions:

 

(i)Issuing Debt amount of US$33,000,000 with a 25% discount netting loan proceeds to the Company of US$25,000,000
(ii)Disbursement of loan is based on 4 tranches: three tranches consisting each of US$5 million on or before on or before August 14th 2014,

August 29th, 2014, and November 27th 2014 with the last tranche of US$18 million on or before February 28th 2015, whereas ECAB had been provided a 25% discount on the issued principal debt amount upon each tranche disbursement.

(iii)Maturity Date is February 29, 2020
(iv)Interest Rate is 10.5% per annum
(v)Conversion rate is at US$9.90/share (post-split) applicable to both principal loan amount and accrued interest at option of ECAB.

 

Notification of the Convertible Note was filed with the SEC on September 4, 2014.

 

The table below shows the records of accounts of ECAB’s Convertible Bonds as of September 30th 2016:

 

   US$   Numbers of shares
Net amount of principal owed as at 30.09.2016   15,423,890.00  
25% discount on Principal owed as at 30.09.2016   5,141,296.67    
Total Principal payable as at 30.09.2016   20,565,186.67    
Cumulative numbers of shares available for conversion as at 30.09.2016       2,373,406 shares
Accrued interest over the period   2,931,531.38    
Total interest added to Principal as if converted under a note as at 30.09.2016   23,496,718.05    

 

 - 24 - 

 

 

Part C. Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2015 (presented in summarized Charts below):

 

Revenue:

 

Revenues decreased by $10,682,811 or 3% to $320,313,767 for the nine months ended September 30, 2015 from $330,996,577 for the nine months ended September 30, 2015. The decrease was primarily due to the decrease of revenue generated from our fishery, beef, organic fertilizer, and cattle farm whereas corporate and others operations and the maturity of on-going divisional businesses improved their revenues.

 

The following chart illustrates the changes by category from the nine months ended September 30, 2015 to September 30, 2016

  

Revenue            
   2016   2015    
Category  Q1-Q3   Q1- Q3   Difference 
       $   $ 
Fishery   113,256,746    138,547,396    (25,290,650)
                
Plantation   12,194,399    11,568,406    625,993 
                
Beef   88,813,154    92,037,374    (3,224,220)
                
Organic fertilizer   35,190,587    30,125,130    5,065,457 
                
Cattle farm   21,555,101    27,424,589    (5,869,488)
                
Corporate and others   49,303,780    31,293,682    18,010,098 
                
Total   320,313,767    330,996,577    (10,682,810)

 

Cost

 

Cost decreased by $3,091,790 or 1% to $238,139,232 for the nine months ended September 30, 2016 from $241,231,022 for the nine months ended September 30, 2015. The decrease was primarily due to the corresponding increase and decrease from our overall operations for nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015.

 

The following chart illustrates the changes by category from the nine months ended September 30, 2016 to September 30, 2015.

  

Cost            
   2016   2015    
Category  Q1- Q3   Q1- Q3   Difference 
   $   $   $ 
Fishery   79,778,878    96,967,811    (17,188,933)
                
Plantation   5,664,598    3,592,659    2,071,939 
                
Beef   68,857,559    72,105,028    (3,247,469)
                
Organic fertilizer   19,993,030    17,124,547    2,868,483 
                
Cattle farm   20,392,263    26,121,572    (5,729,309)
                
Corporate and others   43,452,904    25,319,405    18,133,499 
                
Total   238,139,232    241,231,022    (3,091,790)

 

 - 25 - 

 

 

Gross Profit

 

Gross profit decreased by $7,591,020 or 8% to $82,174,535 for the nine months ended September 30, 2016 from $89,765,555 for the nine months ended September 30, 2015.The decrease was primarily due to the corresponding decreases in operation revenues.

 

The following chart illustrates the changes by category from the nine months ended September 30, 2016 to September 30, 2015.

 

The gross profit by category is as follows:

 

Gross profit            
   2016   2015     
Category  Q1-Q3   Q1- Q3   Difference 
       $   $ 
Fishery   33,477,868    41,579,585    -8,101,717 
                
Plantation   6,529,801    7,975,747    -1,445,946 
                
Beef   19,955,595    19,932,346    23,249 
                
Organic fertilizer   15,197,557    13,000,583    2,196,974 
                
Cattle farm   1,162,838    1,303,017    -140,179 
                
Corporate and others   5,850,876    5,974,277    -123,401 
                
Total   82,174,535    89,765,555    -7,591,020 

 

General and Administrative Expenses and Interest Expenses

 

General and administrative expenses and interest expenses (including depreciation and amortization) decreased by $1,033,867 or 6% to $16,314,862 for the nine months ended September 30, 2016 from $17,348,729 for the nine months ended September 30, 2015.  The change was primarily due to (i) an increase in Wages and salaries of $3,264,942 for the nine months ended September 30, 2016 from $1,701,679 for the nine months ended September 30, 2015 and (ii) a decrease in Office and corporate expense amounting to $4,227,072 for the nine months ended September 30, 2016 as compared to $7,154,024 for the nine months ended September 30, 2015.

 

Category  2016 Q1-Q3   2015 Q1-Q3   Difference 
       $   $ 
Office and corporate expenses   4,227,072    7,154,024    (2,926,952)
Wages and salaries   3,264,942    1,701,679    1,563,263 
Traveling and related lodging   119,580    115,087    4,493 
Motor vehicles expenses and local transportation   119,256    139,028    (19,773)
Entertainments and meals   634,507    141,390    493,118 
Others and miscellaneous   2,156,311    2,138,726    17,585 
Depreciation and amortization   2,638,240    2,520,101    118,139 
Sub-total   13,159,908    13,910,035    (750,127)
Interest expenses   3,154,954    3,438,694    (283,740)
Total   16,314,862    17,348,729    (1,033,867)

 

 - 26 - 

 

 

Depreciation and Amortization

 

Depreciation and amortization increased by $1,231,980 or 34% to $4,890,426 for the nine months ended September 30, 2016 from $3,658,446 for the nine months ended September 30, 2015. The increase was primarily due to the increase of depreciation by $1,261,781 to $3,406,801 for the nine months ended September 30, 2016 from depreciation of $2,145,020 for the nine months ended September 30, 2015, and the decrease of amortization by $29,801 to $1,483,625 for nine months ended September 30, 2016 from amortization of $1,513,426 for nine months ended September 30, 2015.

 

In this respect, total depreciation and amortization amounted to $4,890,426 for the nine months ended September 30, 2016, out of which amount $2,638,240 was reported under General and administration expenses and $2,252,186 was reported under cost of goods sold; whereas total depreciation and amortization was at to $3,658,446 for the nine months ended September 30, 2015 and out of which amount $2,520,101 was reported under General and Administration expenses and $1,138,345 was reported under cost of goods sold.

 

 - 27 - 

 

 

PartD. MD&A on records of historical performances reflecting the Company’s “Free Cash Flow “derivation: (Inclusive the Group and subsidiaries in segments containing Non-GAAP derivation)

 

   2013   2014   2015   2016Q1-3   Total 
                     
Sale of goods   209    323    337    265    1,134 
Consulting income   52    81    92    55    280 
                          
Cost of goods sold   139    231    261    203    834 
Cost of service   21    44    57    35    157 
                          
EBITDA   98    119    101    73    391 
                          
Depreciation & amortization   3    5    5    5    17 
                          
Net income attributable to SIAF & subsidiaries   74    92    66    49    281 
                          
Non - controlling interest   20    22    25    19    85 
                          
Net Incomes of the group   94    114    91    68    430 
                          
Total Assets   357    513    640    716      
                          
Current assets   147    282    350    381      
                          
Total liabilities   38    72    70    75      
                          
Current liabilities   31    52    28    32      
                          
Capital employed   326    461    611    684    - 
                          
Total stockholders’ equity   319    441    569    641      
Internal transaction adjustment   0    -0    -0    -      
Total stockholders’ equity (adjustment)   319    440    569    641      
                          
ROCE   49%   59%   49%   40%     
                          
Total Capex   71    35    47    53    206 
1. property and equipment   22    21    43    10    96 
2. construction in progress   41    10    4    43    98 
3. land use right   4    4    -    -    8 
4. proprietary technologies   4    -    -    -    4 
                          
Ending balance   116    230    322    349      
1. cash and cash equivalents   1    3    7    9      
2. inventories   8    46    63    65      
3. deposits and prepaid expenses   51    76    84    95      
4. account receivable   82    105    136    136      
5. other receivables   5    52    60    76      
6. account payables and accrued expenses   -11    -22    -9    -15      
7. short term loan   -4    -4    -4    -7      
8. other payables   -16    -26    -15    -10      
                          
Total increase of wc   5    114    92    27    291 
                          
Total capex and increase of wc   76    149    139    80    444 
                          
Free Cash Flow (FCF)   22    -30    -37    -7    -53 
                          
Net Debt   -5    -20    -41    -33      
                          
Total authorized common stocks   17    23    23    23      
                          
Weighted average of total issue & outstanding common stocks                         
Basic   12    16    17.89    20      
Diluted   13    17    18.29    23      
                          
Earning per share (or EPS)                         
Basic   6.14    5.79    3.63    1.04      
Diluted   5.76    5.55    3.59    0.95      

 

 - 28 - 

 

 

E.2 on APWA (holding company of SJAP).

 

   2013   2014   2015   2016Q1-3   Total 
                     
Sale of goods   62    102    144    109    417 
                          
Cost of goods sold   38    68    111    81    298 
                          
EBITDA   27    33    34    32    126 
                          
Depreciation & amortization   -    1    1.01    1.98    4 
                          
Net income attributable to SIAF & subsidiaries   12    14    15    13    54 
                          
Non - controlling interest   15    17    18    17    67 
                          
Net Incomes of the group   27    31    33    30    121 
                          
Total Assets   88    158    200    240      
                          
Current assets   35    83    105    112      
                          
Total liabilities   15    28    17    17      
                          
Current liabilities   14    16    14    15      
                          
Capital employed   74    142    186    225      
                          
Total stockholders’ equity   73    130    183    223      
Internal transaction adjustment   -32    -58    -78    -88      
Total stockholders’ equity (adjustment)   41    72    105    135      
                          
ROCE   47%   46%   49%   42%     
                          
Total Capex   38    20    21    30    109 
1. property and equipment   12    6    31    9    58 
2. construction in progress   24    14    -10    21    49 
3. land use right   -    -    -    -    - 
4. proprietary technologies   2    -    -    -    2 
                          
                          
Ending balance   21    67    91    93      
1. cash and cash equivalents   0.38    1    2    2      
2. inventories   4    27    34    38      
3. deposits and prepaid expenses   13    19    18    17      
4. account receivable   16    34    48    48      
5. other receivables   2    2    2    7      
6. account payables and accrued expenses   -5    -4    -5    -6      
7. short term loan   -4    -4    -4    -7      
8. other payables   -5    -8    -5    -6      
                          
Total increase of wc   3    46    24    3    75 
                          
Total capex and increase of wc   41    66    45    33    184 
                          
Free Cash Flow (FCF)   -14    -33    -10    -0    -58 
                          
Net Debt   -5    -7    -6    -8      

 

 - 29 - 

 

 

E.3.SIAF’s Corporate Operational division

 

   2013   2014   2015   2016Q1-3   Total 
                     
Sale of goods   22    51    38    49    160 
Consulting income   9    5    4    -    18 
                          
Cost of goods sold   19    45    33    43    140 
Cost of service   3    5    1    -    9 
                          
EBITDA   6    6    0    -3    9 
                          
Depreciation & amortization   -    0    0    -      
                          
Net income attributable to SIAF & subsidiaries   6    6    -5    -3    4 
                          
Non - controlling interest   -    -    -    -      
                          
Net Incomes of the group   6    6    -5    -3    4 
                          
Total Assets   19    43    95    108      
                          
Current assets   10    39    76    90      
                          
Total liabilities   8    13    39    47      
                          
Current liabilities   6    10    1    17      
                          
Capital employed   13    33    94    91      
                          
Total stockholders’ equity   11    30    56    61      
Internal transaction adjustment   87    82    89    81      
Total stockholders’ equity (adjustment)   98    112    145    142      
                          
ROCE   73%   40%   3%   -12%     
                          
Total Capex   2    1    4    4    11 
1. property and equipment   -    -    -    1    - 
2. construction in progress   -    1    4    3    8 
3. land use right   -    -    -    -    - 
4. proprietary technologies   2    -    -    -    2 
                          
                          
Ending balance   4    29    76    85      
1 .cash and cash equivalents        2    -    -      
2 .inventories   -    -    4    -      
3. deposits and prepaid expenses   2    2    28    34      
4. account receivable   8    9    9    17      
5. other receivables   0    26    35    39      
6. account payables and accrued expenses   -1    -3    -    -3      
7. short term loan   -    -    -    -      
8. other payables   -5    -7    -1    -2      
                          
Total increase of wc   4    25    47    9    85 
                          
Total capex and increase of wc   6    26    51    13    96 
                          
Free Cash Flow (FCF)   0    -20    -51    -16    -87 
                          
Net Debt   -    -13    -35    -25      

 

 - 30 - 

 

 

 E.4. CA (Fishery Development Division)

 

   2013   2014   2015   2016Q1-3   Total 
   In
rounded
figures of
$ million
                 
Sale of goods   47    54    47    37    185 
Consulting income   36    76    88    55    255 
                          
Cost of goods sold   33    31    35    28    127 
Cost of service   13    39    56    35    143 
                          
EBITDA   37    55    43    29    164 
                          
Depreciation & amortization   -    -    0    -      
                          
Net income attributable to SIAF & subsidiaries   37    55    43    29    164 
                          
Non - controlling interest   -    -    -    -      
                          
Net Incomes of the group   37    55    43    29    164 
                          
Total Assets   81    111    123    142      
                          
Current assets   54    79    85    101      
                          
Total liabilities   7    20    10    4      
                          
Current liabilities   4    20    10    4      
                          
Capital employed   77    91    113    138      
                          
Total stockholders’ equity   74    91    113    138      
Internal transaction adjustment   45    84    104    108      
Total stockholders’ equity (adjustment)   119    174    217    246      
                          
ROCE   97%   140%   119%   92%     
                          
Total Capex   3    4    -    5    12 
1. property and equipment   -    -    -    -    - 
2. construction in progress   3    -    -    5    8 
3. land use right   -    4    -    -    4 
4. proprietary technologies   -    -    -    -    - 
                          
                          
Ending balance   50    59    75    97      
1. cash and cash equivalents   -    -    -    -      
2. inventories   -    -    -    3      
3. deposits and prepaid expenses   -    32    23    20      
4. account receivable   36    28    44    54      
5. other receivables   2    19    19    25      
6. account payables and accrued expenses   -    -11    -1    -2      
7. short term loan   -    -    -    -      
8. other payables   -4    -9    -9    -2      
                          
Total increase of wc   -    9    16    22    47 
                          
Total capex and increase of wc   3    13    16    27    59 
                          
Free Cash Flow (FCF)   34    42    27    2    105 
                          
Net Debt   -    -    -    -      

 

 - 31 - 

 

 

E.5.Triway (the holding company of Fish Farm (1))

 

   2013   2014   2015   2016Q1-3   Total 
                     
Sale of goods   25    52    39    20    136 
                          
Cost of goods sold   19    41    33    16    109 
                          
EBITDA   6    10    6    3    26 
                          
Depreciation & amortization   0    1    0.79    0.42    3 
                          
Net income attributable to SIAF & subsidiaries   5    8    3    2    18 
                          
Non - controlling interest   1    2    2    1    6 
                          
Net Incomes of the group   6    10    5    3    24 
                          
Total Assets   21    21    24    28      
                          
Current assets   6    -    13    18      
                          
Total liabilities   -    -    -    4      
                          
Current liabilities   -    -    -    4      
                          
Capital employed   21    21    24    24      
                          
Total stockholders’ equity   21    21    24    24      
Internal transaction adjustment   -7    2    4    7      
Total stockholders’ equity (adjustment)   13    23    28    31      
                          
ROCE   53%   97%   87%   75%     
                          
Total Capex   2    1    2    3    8 
1. property and equipment   -    2    2    -    4 
2. construction in progress   2    -1    -    3    4 
3. land use right   -    -    -    -    - 
4. proprietary technologies   -    -    -    -      
                          
Ending balance   6    10    13    14      
1. cash and cash equivalents   -    -    5    5      
2. inventories   2    3    4    4      
3. deposits and prepaid expenses   4    4    2    7      
4. account receivable   -    -    -    -      
5. other receivables   -    3    3    3      
6. account payables and accrued expenses   -    -    -    -3      
7. short term loan   -    -    -    -      
8. other payables   -    -    -    -1      
                          
Total increase of wc   -1    4    3    1    7 
                          
Total capex and increase of wc   1    5    5    4    15 
                          
Free Cash Flow (FCF)   5    5    1    -1    11 
                          
Net Debt   -    -    -    -      

 

 - 32 - 

 

 

E.6. MEIJI (Cattle Farm Development and holding company of CF(1))

 

   2013   2014   2015   2016Q1-3   Total 
                     
Sale of goods   18    33    35    22    108 
Consulting income   7    -              7 
                          
Cost of goods sold   13    31    33    20    97 
Cost of service   5    -              5 
                          
EBITDA   5    2    3    3    13 
                          
Depreciation & amortization   0    0    0.59    0.48    2 
                          
Net income attributable to SIAF & subsidiaries   5    1    2    3    11 
                          
Non - controlling interest   -    -    0    0    1 
                          
Net Incomes of the group   5    1    2    3.0    11 
                          
Total Assets   34    42    39    40      
                          
Current assets   11    17    18    11      
                          
Total liabilities   2    5    -    -      
                          
Current liabilities   1    -    -    -      
                          
Capital employed   33    42    39    40      
                          
Total stockholders’ equity   32    37    39    40      
Internal transaction adjustment   -10    -14    -14    -12      
Total stockholders’ equity (adjustment)   22    23    25    28      
                          
ROCE   43%   36%   21%   15%     
                          
Total Capex   -    -    2    -    2 
1. property and equipment   -    -    2    -    2 
2. construction in progress   -    -    -    -    - 
3. land use right   -    -    -    -    - 
4. proprietary technologies                         
                          
Ending balance   10    17    18    11      
1. cash and cash equivalents   0.49    -    -    -      
2. inventories   1    1    4    4      
3. deposits and prepaid expenses   1    3    3    5      
4. account receivable   9    13    11    2      
5. other receivables   -    -    -    -      
6. account payables and accrued expenses   -    -    -    -      
7. short term loan   -    -    -    -      
8. other payables   -1    -    -    -      
                          
Total increase of wc   2    7    1    -7    3 
                          
Total capex and increase of wc   2    7    3    -7    5 
                          
Free Cash Flow (FCF)   3    -5    -0    11    8 
                          
Net Debt   -    -    -    -      

 

 - 33 - 

 

 

E.7. MEIJI and JHST plantation division

 

   2013   2014   2015   2016Q1-3   Total 
                     
Sale of goods   23    11    14    12    60 
                          
Cost of goods sold   10    4    4    6    24 
                          
EBITDA   11    6    9    6    32 
                          
Depreciation & amortization   1    1    1.15    0.77    4 
                          
Net income attributable to SIAF & subsidiaries   7    4    6    3.60    20 
                          
Non - controlling interest   3    1    2    1.20    7 
                          
Net Incomes of the group   10    5    8    4.80    28 
                          
Total Assets   37    39    45    42    - 
                          
Current assets   19    24    21    19    - 
                          
Total liabilities   -    1    1    1    - 
                          
Current liabilities   -    1    -    -    - 
                          
Capital employed   37    38    45    42    - 
                          
Total stockholders’ equity   37    38    44    41    - 
Internal transaction adjustment   -13    -9    -7    1    - 
Total stockholders’ equity (adjustment)   24    29    37    42    - 
                          
ROCE   43%   55%   51%   42%     
                          
Total Capex   10    1    5.1    1.0    17 
1. property and equipment   6    1    2.5    -    10 
2. construction in progress   -    -    2.6    1.0    4 
3. land use right   4    -    -    -    4 
4. proprietary technologies   -    -    -    -    - 
                          
Ending balance   19    23    21    19      
1. cash and cash equivalents   -    -    -    1      
2. inventories   1    1    1    1      
3. deposits and prepaid expenses   9    11    6    8      
4. account receivable   9    11    12    8      
5. other receivables   -    1    1    1      
6. account payables and accrued expenses   -    -    -    -    - 
7. short term loan   -    -    -    -    - 
8. other payables   -    -1    -    -    - 
                          
Total increase of wc   2    4    -2    -2    2 
                          
Total capex and increase of wc   12    5    3    -1    19 
                          
Free Cash Flow (FCF)   -1    1    6    6    13 
                          
Net Debt   -    -    -    -    - 

 

 - 34 - 

 

 

E.8. HSA (the Hunan fertilizer Operation)

 

   2013   2014   2015   2016Q1-3   Total 
                     
Sale of goods   12    20    20    16    68 
                          
Cost of goods sold   7    11    12    9    39 
                          
EBITDA   4    7    7    5    23 
                          
Depreciation & amortization   1    1    1.48    1.11    5 
                          
Net income attributable to SIAF & subsidiaries   2    5    4    1.90    13 
                          
Non - controlling interest   1    1    1    0.90    4 
                          
Net Incomes of the group   3    6    5    3.75    17 
                          
Total Assets   76    99    115    115      
                          
Current assets   11    30    32    29      
                          
Total liabilities   6    5    4    2      
                          
Current liabilities   6    5    4    1      
                          
Capital employed   70    94    111    114      
                          
Total stockholders’ equity   70    94    111    113      
Internal transaction adjustment   -69    -87    -99    -97      
Total stockholders’ equity (adjustment)   1    7    12    16      
                          
ROCE   2%   9%   10%   8%     
                          
Total Capex   16    8    13    10    47 
1. property and equipment   4    12    6    -    22 
2. construction in progress   12    -4    7    10    25 
3. land use right   -    -              - 
4. proprietary technologies   -    -              - 
                          
Ending balance   5    25    29    28      
1. cash and cash equivalents   -    -    -    0      
2. inventories   -    14    15    15      
3. deposits and prepaid expenses   6    5    5    5      
4. account receivable   4    10    12    8      
5. other receivables   1    1    1    1      
6. account payables and accrued expenses   -5    -4    -4    -1      
7. short term loan   -    -    -    -      
8. other payables   -1    -1    -    -      
                          
Total increase of wc   -6    20    4    -1    17 
                          
Total capex and increase of wc   10    28    17    9    64 
                          
Free Cash Flow (FCF)   -6    -21    -10    -4    -41 
                          
Net Debt   -    -    -    -      

 

 - 35 - 

 

 

Summary of Cashflow of each segments and the Group:

 

9 months 2016
9M 2016 (USD M)  CA + TRW   SJAP   HSA   MEIJI   JHST   SIAF   Eliminations   Group 
Net income for the period   29    30    4    3    5    -3         67.7 
Reconciliation of net income to net cash from ops.                                        
Depreciation   0.4    1.5    0.7    0.2    0.5    0.08         3.4 
Amortization   0.3    0.07    0.4    0.2    0.3    0.07         1.5 
Common stock issued for services   -    -    -    -    -    -         - 
Gain on extinguishment of debts   -    -    -    -    -    2         2.4 
Other amortized cost   -    -    -    -    -    3         2.5 
Cash flow from op. activities before change in WC   30    32    5    3    6    2    -    77.4 
Change in inventories   -3    -3    0    0    0    4         -2.2 
Change in costs and estimated earnings in excess   -    -    -    -         -         -0.3 
of billings on uncompleted contacts   -    -    -    -         -         - 
Change in deposits and prepaid expenses   -2    1    -    -2    -2    -7    2    -9.2 
Change in due to a director   -    -    -    -    -    0.30         0.3 
Change in accounts payable and accrued expenses   4    1    -3    0    0    3         5.7 
Change in other payables   -6.0    0.5    -    -    -    14.7    5    14.6 
Change in accounts receivable   -10    0    4    9    4    -8         -0.1 
Increase (decrease) in billings in excess of costs and estimated   -7    -    -    -    -    -         -7.1 
Change in other receivables   -5    -5    -    -    -    -4    -3    -17.2 
Change in working capital   -30    -5    1    7    2    4    4.9    -15.4 
Net cash provided by operating activities   -    27    6    11    8    6    4.9    62.1 
                                         
Purchases of plant and equipment   -    -8    -    -    -    -1         -9.8 
Investment in unconsolidated equity investee   -    -0.15    -    -    -    -         -0.2 
Payment for construction in progress   -8    -21    -10    -    -1    -3    -5    -47.8 
Net cash used in investing activities   -8.0    -30.0    -9.7    -    -0.7    -4.4    -4.9    -57.8 
short term debts repaid   -    -3.8    -    -    -    -         -3.8 
short term debts raised   -    6.7    -    -    -    -         6.7 
Long term debts repaid   -    -0.8    -    -    -    -         -0.8 
convertible note repaid through director account   -         -    -    -    -8         -7.7 
Net cash from financing activities   -    2.1    -    -    -    -7.7    -    -5.6 
                                         
Effects on exchange rate changes on cash   0.20    1.48    0.82    0.29    0.35    -         3.1 
Change in cash and cash equivalents   -7.9    0.3    -3.0    10.8    7.5    -5.8    -0.0    1.8 
Cash and cash equivalents, beginning of period   4.66    2.13    0.02    0.02    0.02    0.38         7.2 
Cash and cash equivalents, end of period   5.15    2.48    0.25    0.02    0.78    0.37         9.1 

  

2016.01-09 SIAF CAPEX                            
   SIAF   CA + TRW   MEIJI   JHST   HSA   SJAP   Group 
1. property and equipment   1    0    0    0    0    8    9 
2. construction in progress   3    8    0    1    10    21    43 
3. land use right   0    0    0    0    0    0    0 
4. proprietary technologies   0    0    0    0    0    0    0 
                                    
Total Capex   4    8    0    1    10    29    52 

 

Note: SJAP’s construction in progress included work carried out on its 20,000 MT fully computerized automatic loading and discharging cold storage, live cattle ramps and holding bays, meat packing facilities, incoming and outgoing goods discharging station and various marketing outlets and associated infrastructure work etc.

 

 - 36 - 

 

 

Progress information on the Carve-out exercises:

 

The fundamental aim of a carve-out spin-of (COSO) is to provide a foundation for a successful sector of a company to establish its own Board of Directors, provide audited financial statements strictly focused on its operational performance, all in effort to attain a “truer” valuation, both intrinsically and subsequently reflected in its market value, once listed. Sino Agro Food, Inc.’s (SIAF) role / main goal then becomes one of offering strategic support and as a purveyor seeking financial as well as other resources necessary for the COSO to succeed.

 

In this respect, the Company (SIAF) is seeking to derive the greatest return to its shareholders by (i) issuing a substantial portion of its holdings in the COSO to SIAF shareholders of record prior to the COSO IPO, and (ii) providing pre-IPO investors an opportunity to buy into the COSO to help establish / solidify a pre-IPO market valuation to levels at 3 to 4 times the COSO NTA, which is projected to provide a market valuation range at 12 to 16 times earnings.

 

SIAF expects its holdings retained in each COSO as well as COSO shares distributed-to / held-by SIAF shareholders to result in a higher return on investment than currently or possibly even potentially provided under current conditions along with systemic headwinds experienced by SIAF over the last five years.

 

That said, much work and time continues to be required on several fronts simultaneously to achieve these ends. The Company continues to invite constructive criticism and suggestions as it moves these exercises forward, yet, respectfully request shareholders to contact Company representatives for answers to their questions before drawing incomplete or incorrect conclusions.

 

(A). Aquaculture project

 

This aquaculture project is requiring the acquisition of all fishery farms (inclusive FF(1), PF(1), PF(2), PF(3) & PF(4) of the mega prawn farm development in Zhongshan) aiming at total production and sales to reach 70,000 MT by year 2019 with its pre-IPO corporate structure as shown in table below:

 

 

 

 - 37 - 

 

 

 

Notes: An auditor to review financial projections has been appointed and corresponding work will be carried out as soon as said China work and restructuring work have be completed.

 

Below tables show some of the interest information of Triway’s fishery activities:

 

 

 - 38 - 

 

 

 

 

 - 39 - 

 

 

 

 

 - 40 - 

 

 

 

 

 

 - 41 - 

 

 

 

 

 

 

 

 

 - 42 - 

 

 

(B). Beef & Cattle Project and other carve-out projects

 

The Company is on schedule with SJAP on its Carve-out exercise and subsequent listing on the Chinese National Exchange and Quotation Board (NEEQ). The Company’s IR firm will soon initiate periodic updates to shareholders on milestones, as they occur.

 

Income Taxes

 

The Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and no US corporate tax has been provided for in the consolidated financial statements of the Company.

 

Undistributed Earnings of Foreign Subsidiaries

 

The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly, undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States and no provision for U.S. Federal and State income tax or applicable dividend distribution tax has been provided thereon.

 

The Company had appointed a US tax professional to assist in filing income tax returns with the IRS in July, 2016 for the years ended December 31, 2007 through December 31, 2013 in compliance with US Treasury Internal Revenue Service Code. The income tax return for 2015 is expected to be filed during calendar year 2016.

 

At the same time, The Company has reviewed its tax position with the assistance of a US tax professional and believes that there will be no taxes and no penalties assessed by the Internal Revenue Service in the United States of America.

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, JFD, HAS, QZH and SJAP since they are exempt from EIT for the nine months ended September 30, 2016 and 2015 as they are within the agriculture, dairy and fishery sectors.

 

CA, CS and CH are international business companies incorporated in Belize, and are exempt from corporate tax in Belize.

 

No Hong Kong profits tax has been provided in the consolidated financial statements, since TRW did not earn any assessable profits arising in Hong Kong for the nine months ended September 30, 2016 and 2015.

 

No Macau Corporate income tax has been provided in the consolidated financial statements, since APWAM and MEIJI did not earn any assessable profits in Macau for the nine months ended September 30, 2016 and 2015.

 

No Swedish Corporate income tax has been provided in the consolidated financial statements, since SAFS incurred a tax loss for the nine months ended September 30, 2016.

 

No deferred tax assets and liabilities are payable as of September 30, 2016 and December 31, 2015 since there was no difference between the financial statements carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to reverse.

 

Off Balance Sheet Arrangements

None.

 

Liquidity and Capital Resources

 

As of September 30 2016, unrestricted cash and cash equivalents amounted to $9,052,566 (see notes to the consolidated financial statements), and our working capital as of September 30, 2016 was $349,171,625.

  

Contractual Obligations  Less than 1 year   1-3years   3-5 years   More than 5 years   Total 
Short Term Bank Loan   7,357,739                     
Long Term Debts        728,514                
Promissory Notes        6,369,950                
Negotiable promissory notes   885,997                     
Due to debts loan        13,052,702                
Convertible note payables             23,496,718           

 

 - 43 - 

 

 

As of September 30, 2016, our total long-term debts are as follows:

 

Cash provided by operating activities amounted to $62,060,468 for Q1-3 2016. This compares with cash provided by operating activities totaled $36,664,893 for Q1-3 2015. The increase in cash flows provided by operating activities resulted primarily from the decrease of accounts receivable of $(84,654) for Q1-3 2016 from $(24,754,751) for Q1-3 2015.

 

Cash used in investing activities totaled $(57,758,296) for Q1-3 2016. This compares with cash used in investing activities totaling $(44,544,161) for Q1-3 2015. The increase in cash flows used in investing activities resulted primarily from payment for construction of $(47,834,113) for Q1-3 2016 from $(40,594,640) for Q1-3 2015.

 

Cash provided by financing activities totaled $(5,611,449) for Q1-3 2016. This compares with cash provided by financing activities totaling $9,765,852 for Q1-3 2015. The decrease cash used in financing activities due to (i) for Convertible notes repaid of $ (7,676,760); and (ii) net proceeds from negotiable promissory notes of $0 for Q1-3 2016 from $3,540,000 for Q1-3 2015.

 

CRITICAL ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The unaudited consolidated financial statements for the nine months ended September 30, 2016 are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

The unaudited quarterly financials for the nine months ended September 30, 2016 results are for the months and do not necessarily indicate the results for a full year. The information included in this interim report should be read in conjunction with the information included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2015.

 

BASIS OF CONSOLIDATION

 

The consolidated financial statements include the financial statements of SIAF, its subsidiaries Capital Award, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS and its variable interest entity SJAP and QZH. All material inter-company transactions and balances have been eliminated in consolidation. The results of companies acquired or disposed of during the year are included in the consolidated Financial Statements from the effective date of acquisition.

 

BUSINESS COMBINATIONS

 

The Company adopted the accounting pronouncements relating to business combinations (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed arising from contingencies. These pronouncements established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquire as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. Our adoption of these pronouncements will have an impact on the manner in which we account for any future acquisitions.

 

NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

The Company adopted the accounting pronouncement on non-controlling interests in consolidated financial statements, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance is primarily contained in ASC Topic “Consolidation”. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated financial statements. The adoption of this standard has not had material impact on our consolidated financial statements.

 

USE OF ESTIMATES

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods covered thereby. Actual results could differ from these estimates. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. The following are some of the areas requiring significant judgments and estimates: determinations of the useful lives of assets, estimates of allowances for doubtful accounts, cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, estimates of the reliability of deferred tax assets and inventory reserves.

 

 - 44 - 

 

 

REVENUE RECOGNITION

 

The Company’s revenue recognition policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv), the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer. Service revenue is recognized when services have been rendered to a buyer by reference to the stage of completion. License fee income is recognized on the accrual basis in accordance with the underlying agreements.

 

Government grants are recognized upon (i) the Company has substantially accomplished what we must be done pursuant to the terms of the policies and terms of the grant that are established by the local government; and (ii) the Company receives notification from the local government that the Company has satisfied all of the requirements to receive the government grants; and or (iii) the amounts are received.

 

Multiple-Element Arrangements

 

To qualify as a separate unit of accounting under ASC 605-25“Multiple Element Arrangements”, the delivered item must have value to the customer on a standalone basis. The significant deliverables under the Company’s multiple-element arrangements are consulting and service under development contract, commission and management service.

 

Revenues from the Company's fishery development services contract are performed under fixed-price contracts. Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (“ASC 605”). Under the percentage-of-completion method, the Company estimates profit as the difference between total estimated revenue and total estimated cost of a contract and recognized that profit over the contract term. The percentage of costs incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the installation contract and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences are recorded as either costs or estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts.

 

The Company determines a customer’s credit worthiness at the time an order is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.

 

The percentage of completion method requires the ability to estimate several factors, including the ability of the customer to meet its obligations under the contract, including the payment of amounts when due. If the Company determines that collectability is not assured, we will defer revenue recognition and use methods of accounting for the contract such as the completed contract method until such time as the Company determines that collectability is reasonably assured or through the completion of the project.

 

For fixed-price contracts, the Company uses the ratio of costs incurred to date on the contract (excluding uninstalled direct materials) to management's estimate of the contract's total costs, to determine the percentage of completion on each contract. This method is used as management considers expended costs to be the best available measure of progression of these contracts. Contract costs included all direct material, subcontract and labor costs and those indirect costs related to contract performance, such as supplies, tool repairs and depreciation. The Company accounts for maintenance and repair services under the guidance of ASC 605 as the services provided relate to construction work. Contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract. Changes in job performance, job conditions, and estimated profitability arising from contract penalty, change orders and final contract settlements may result in revisions to the estimated profitability during the contract. These changes, which include contracts with estimated costs in excess of estimated revenues, are recognized as contract costs in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. At the point the Company anticipates a loss on a contract, the Company estimates the ultimate loss through completion and recognizes that loss in the period in which the possible loss was identified.

 

The Company does not provide warranties to customers on a basis customary to the industry; however, the customers can claim warranty directly from product manufacturers for defects in equipment or products. Historically, the Company has experienced no warranty claims.

 

The Company’s fishery development consultancy services revenues are recognized when the relevant services are rendered, and are subject to a Chinese business tax at a rate of 0% of the gross fishery development contract service income approved by the Chinese local government.

 

 - 45 - 

 

 

COST OF GOODS SOLD AND SERVICES

 

Cost of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies. Cost of services consists primarily of direct cost and indirect cost incurred to date for development contracts and provision for anticipated losses on development contracts.

 

SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $2,988, $1,260, $17,272 and $9,952 for the three months and the nine months ended September 30, 2016 and 2015, respectively.

 

ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $382,596, $712,614, $1,163,547 and $1,421,458 for the three months ended and the nine months ended September 30, 2016 and 2015, respectively.

 

RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $0, $549,020, $0 and $549,020 for the three months ended and the nine months ended September 30, 2016 and 2015, respectively.

 

CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash and cash equivalents kept with financial institutions in People’s Republic of China (“P.R.C”) are not insured or otherwise protected. Should any of those institutions holding the Company’s cash become insolvent, or the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit on that institution.

 

ACCOUNTS RECEIVABLE

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary. Reserves are recorded primarily on a specific identification basis.

 

The standard credit period of the Company’s most of customers is three months. Any amount that has an extended settlement date of over one year is classified as a long term receivable. Management evaluates the collectability of the receivables at least quarterly. There were no bad debts written off for the nine months ended September 30, 2016 or September 30, 2015.

 

INVENTORIES

 

Inventories are valued at the lower of cost (determined on a weighted average basis) and net realizable value. Costs incurred in bringing each product to its location and conditions are accounted for as follows:

 

raw materials - purchase cost on a weighted average basis;
manufactured finished goods and work-in-progress - cost of direct materials and labor and a proportion of manufacturing overhead based on normal operation capacity but excluding borrowing costs; and
retail and wholesale merchandise finished goods - purchase cost on a weighted average basis.

 

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at the end of each year.

 

 - 46 - 

 

 

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets.

 

Milk cows   10 years
Plant and machinery   5 - 10 years
Structure and leasehold improvements   10 -20 years
Mature seed and herbage cultivation   20 years
Furniture, fixtures and equipment   2.5 - 10 years
Motor vehicles   5 -10 years

 

An item of property and equipment is removed from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statements of income in the period the item is disposed.

 

GOODWILL

 

Goodwill is an asset representing the fair economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is tested for impairment on an annual basis at the end of the company’s fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting unit. The Company directly acquired MEIJI which is engaged in Hu Plantation. As a result of this acquisition, the Company recorded goodwill in the amount of $724,940. This goodwill represents the fair value of the assets acquired in these acquisitions over the cost of the assets acquired.

 

PROPRIETARY TECHNOLOGIES

 

The Company has determined that technological feasibility is established at the time a working model of products is completed. Master license of stock feed manufacturing technology was acquired and the costs of acquisition were capitalized as proprietary technologies when technological feasibility had been established. Proprietary technologies are intangible assets of finite lives. Proprietary technologies are amortized using the straight line method over their estimated lives of 25 years.

 

An aromatic cattle-feeding formula was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated life of 25 years.

 

The cost of sleep cod breeding technology license is capitalized as proprietary technologies when technological feasibility has been established. Cost of granting sleep cod breeding technology license is amortized using the straight-line method over its entitled life of 25 years.

 

Bacterial cellulose technology license and related trademark are capitalized as proprietary technologies when technological feasibility has been established. Cost of license and related trademark is amortized using the straight-line method over its estimated life of 20 years.

 

Management evaluates the recoverability of proprietary technologies on an annual basis of the end of the company’s fiscal year, or when impairment indicators arise. As required by ASC Topic 350 “Intangible - Goodwill and Other”, the Company uses a fair-value-based approach to test for impairment.

 

CONSTRUCTION IN PROGRESS

 

Construction in progress represents direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until construction is completed and the asset is ready for its intended use.

 

LAND USE RIGHTS

 

Land use rights represent acquisition of land use right rights of agriculture land from farmers and are amortized on the straight line basis over the respective lease periods. The lease period of agriculture land is in the range from 10 years to 60 years. Land use rights purchase prices were determined in accordance with the P.R.C Government’s minimum lease payments of agriculture land and mutually agreed between the company and the vendors. No independent professional appraiser performed a valuation of land use rights at the balance sheet dates.

 

 - 47 - 

 

 

CORPORATE JOINT VENTURE

 

A corporation formed, owned, and operated by two or more businesses (ventures) as a separate and discrete business or project (venture) for their mutual benefit is considered to be a corporate joint venture. Investee entities, in which the company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is included in net income.

 

A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

 

VARIABLE INTEREST ENTITY

 

An entity (investee) in which the investor has obtained less than a majority-owned interest, according to the Financial Accounting Standards Board (FASB). A variable interest entity (VIE) is subject to consolidation if a VIE is an entity meeting one of the following three criteria as elaborated in ASC Topic 810-10, Consolidation.

 

(a)equity-at-risk is not sufficient to support the entity's activities
(b)as a group, the equity-at-risk holders cannot control the entity; or
(c)the economics do not coincide with the voting interest.

 

If a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined as the person or company with the majority of variable interests

 

TREASURY STOCK

 

Treasury stock consists of a Company’s own stock which has been issued, but is subsequently reacquired by the Company. Treasury stock does not reduce the number of shares issued but does reduce the number of shares outstanding. These shares are not eligible to receive cash dividends. Accounting for excesses and deficiencies on treasury stock transactions is governed by ASC 505-30-30.

 

State laws and federal agencies closely regulate transactions involving a company’s own capital stock, so the purchase of outstanding shares and converting them into treasury shares must have a legitimate purpose. Some of the most common reasons for purchasing outstanding shares are as follows:

 

(i) to meet additional stock needs for various reasons, including newly implemented stock option plans, the issuance stock for convertible bonds or convertible preferred stock, or a stock dividend;

 

(ii) to eliminate the ownerships interests of a stockholder;

 

(iii) to increase the market price of the stock that returns capital to shareholders; and

 

(iv) to potentially increase earnings per share of the stock by decreasing the shares outstanding on the same earnings.

 

The cost method of accounting for treasury stock shares has been adopted by the Company. The purchase of outstanding shares is treated as a temporary reduction in shareholders’ equity in view of the expectation to reissue the shares instead of retiring them. When the Company reissues the treasury shares, the temporary account is eliminated. The cost of treasury stock shares reacquired is charged to a contra account, in this case a contra equity account that reduces the stockholder equity balance.

 

NON-CURRRRENT ASSETS HELD FOR SALE AND DISCONTINUED

 

The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Property and equipment are not depreciated once classified as held for distribution. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated balance sheets. A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

 

represents a separate major line of business or geographical area of operations

 

is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or

 

is a subsidiary acquired exclusively with a view to resale

 

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of income and other comprehensive income.

 

INCOME TAXES

 

The Company accounts for income taxes under the provisions of ASC 740 “Accounting for Income Taxes”. Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

The provision for income tax is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred taxes area accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.

 

 - 48 - 

 

 

Deferred income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also adjusted in the equity accounts. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. ASC 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ASC 740 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded in tax expense.

 

POLITICAL AND BUSINESS RISK

 

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

 

In accordance with ASC 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, at the end of each fiscal year. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 2016 and December 31, 2015, the Company determined no impairment losses were necessary.

 

EARNINGS PER SHARE

 

As prescribed in ASC Topic 260 “Earning per Share”, Basic Earnings per Share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company’s common stock at the average market price during the period.

 

For the three months ended September 30, 2016 and 2015, basic earnings per share from continuing and discontinued operations attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $1.04 and $1.14, respectively. For the three months ended September 30, 2016 and 2015, diluted earnings per share from continuing and discontinued operations attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.95 and $1.14, respectively.

 

For the three months ended September 30, 2016 and 2015, basic earnings per share from continuing operations attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $0.91 and $0.89, respectively. For the three months ended September 30, 2016 and 2015, diluted earnings per share from continuing operations attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.83 and $0.89, respectively.

 

For the nine months ended September 30, 2016 and 2015, basic earnings per share from continuing and discontinued operations attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $2.45 and $3.02, respectively. For the six months ended September 30, 2016 and 2015, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $2.24 and $3.02, respectively.

 

For the nine months ended September 30, 2016 and 2015, basic earnings per share from continuing operations attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $1.87 and $2.19, respectively. For the six months ended September 30, 2016 and 2015, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $1.72 and $2.19, respectively.

  

FOREIGN CURRENCY TRANSLATION

 

The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (RMB). For those entities whose functional currency is other than the U.S. dollars, all assets and liabilities are translated into U.S. dollars at the exchange rate on the balance sheet date; shareholder equity is translated at historical rates and items in the statements of income and of cash flows are translated at the average rate for the period.

 

Because cash flows are translated based on the weighted average translation rate, amounts related to assets and liabilities reported in the statements of cash flows will not necessarily agree with changes in the corresponding balances in the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statements of equity.

 

 - 49 - 

 

 

For the nine months ended September 30, 2015

 

Translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred. The balance sheet amounts with the exception of equity as of September 30, 2015 and December 31, 2014 were translated at RMB6.36 to $1.00 and RMB6.15 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the nine months ended September. 30, 2015 and September 30, 2014 were RMB6.17 to $1.00 and RMB6.15 to $1.00, respectively.

 

For the nine months ended September 30, 2016

 

Translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred. The balance sheet amounts with the exception of equity as of September 30, 2016 and December 31, 2015 were translated at RMB6.68 to $1.00 and RMB6.36 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the nine months ended September 30, 2016 and September 30, 2015 were RMB6.58 to $1.00 and RMB6.17 to $1.00, respectively.

 

ACCUMULATED OTHER COMPREHENSIVE INCOME

 

ASC Topic 220 “Comprehensive Income” establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.

 

RETIREMENT BENEFIT COSTS

 

P.R.C. state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses when employees have rendered service entitling them to the contribution.

 

STOCK-BASED COMPENSATION

 

The Company adopts both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50,”Equity-Based Payments to Non-Employees” using the fair value method in which an entity issues its equity instruments to acquire goods and services from employees and non-employees. Stock compensation for stock granted to non-employees has been determined in accordance with this accounting standard and the accounting standard regarding accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling goods or services, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. This accounting standard allows the “simplified” method to determine the term of employee options when other information is not available. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

 

 - 50 - 

 

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 2016 or December 31, 2015, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the nine months ended September 30, 2016 or 2015.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

The Company does not expect any recent accounting pronouncements to have a material effect on the Company’s financial position, results of operations, or cash flows.

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such, the updated standard will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. We are still evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The guidance eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development stage entities, primarily presentation of inception to date financial information. The provisions of the amendments are effective for annual reporting periods beginning after December 15, 2014, and the interim periods therein. However, early adoption is permitted. Accordingly, the Company has adopted this standard as of July 31, 2014.

 

In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." ASU 2014-15 will explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. Management is currently evaluating the impact of this pronouncement on our consolidated financial statements.

 

In November 2014, FASB issued ASU No. 2014-17, (Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force.) The amendments in this update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The adoption of ASU 2014-17 did not have a material impact on the Company’s consolidated financial statements.

 

In January 2015, FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have material impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new consolidation standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. A reporting entity may apply a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The Company is currently assessing the impact of the adoption of this guidance on the consolidated financial statements.

 

 - 51 - 

 

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, which simplifies presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU No. 2015-03 will be effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company has elected to adopt this ASU early and the adoption of this guidance did not have a material effect on its consolidated financial statements.

 

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard is effective for us beginning on January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. The adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial statements.

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting (ASU 2016-09) to simplify the accounting for share-based payment transactions, including the income tax consequences, an option to recognize gross share-based compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance will be effective for us in the first quarter of 2017, and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

  

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable

 

ITEM 4.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our CEO and CFO concluded that our Disclosure Controls were effective as of the end of the period covered by this report.

 

Changes in Internal Control over Financial Reporting

 

We have also evaluated our internal controls for financial reporting, and there has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting

 

Limitations on the Effectiveness of Controls

 

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 - 52 - 

 

 

PART II - OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

None

 

ITEM 1A.RISK FACTORS

 

Not applicable

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the 3 months period ended September 30, 2016, we issued 1,191,537 shares out of which 1,191,537 shares were issued as security for a working capital trading facility.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.OTHER INFORMATION

 

None

 

ITEM 6.EXHIBITS

 

 - 53 - 

 

 

SIGNATURES

 

 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    SINO AGRO FOOD, INC.
     
November 14, 2016 By: /s/ LEE YIP KUN SOLOMON
    Lee Yip Kun Solomon
    Chief Executive Officer
    (Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

November 14, 2016 By:    /s/ LEE YIP KUN SOLOMON
    Lee Yip Kun Solomon
    Chief Executive Officer, Director
    (Principal Executive Officer)

 

November 14, 2016 By:    /s/ Daniel Ritchey
    Daniel Ritchey
    Chief Financial Officer
    (Principal Financial Officer)

 

November 14, 2016 By: /s/ TAN POAY TEIK
    Tan Poay Teik
    Chief Marketing Officer and Director
     
November 14, 2016 By: /s/ CHEN BOR HANN
    Chen Bor Hann
    Corporate Secretary and Director

 

November 14, 2016 By: /s/ YAP KOI MING
    Yap Koi Ming
    Director

 

November 14, 2016 By: /s/ Nils Erik Sandberg
    Nils Erik Sandberg
    Director

 

November 14, 2016 By: /s/ DANIEL RITCHEY
    Daniel Ritchey
    Director

 

November 14, 2016 By: /s/ SOH LIM CHANG
    Soh Lim Chang
    Director

 

 - 54 -